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Global dollar credit: links to US monetary policy and leverage

Author

Listed:
  • Robert N McCauley
  • Patrick McGuire
  • Vladyslav Sushko

Abstract

Banks and bond investors have extended $9 trillion of US dollar credit to non-bank borrowers outside the United States. This has relevance for the discussion of global liquidity and global monetary policy transmission. This paper contributes to this policy discussion by analysing the links between US monetary policy, including unconventional monetary policy, leverage and flows into bond funds, on the one hand, and dollar credit extended to non-US borrowers, on the other. We find that prior to the crisis, banks drew on low funding rates and low-cost leverage to extend dollar credit to non-US orrowers. After the Federal Reserve announced its large-scale bond purchases in 2008, however, bond investors responded to compressed long-term rates by buying dollar bonds from non-US borrowers. The balance of dollar credit transmission has shifted from global banks to global bond investors.

Suggested Citation

  • Robert N McCauley & Patrick McGuire & Vladyslav Sushko, 2015. "Global dollar credit: links to US monetary policy and leverage," BIS Working Papers 483, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:483
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    Keywords

    US dollar; offshore credit; interest rate differentials; leverage; bond fund flows; policy rates; term premium; unconventional monetary policy;
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