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Transmission of monetary policy through global banks: whose policy matters?

Author

Listed:
  • Stefan Avdjiev
  • Catherine Koch
  • Patrick McGuire
  • Goetz von Peter

Abstract

This paper explores the basic question of whose monetary policy matters for banks' international lending. In the international context, monetary policies from several countries could come into play: the lender's, the borrower's, and that of a third country, the issuer of the currency in which cross-border lending is denominated. Using the rich dimensionality of the BIS international banking statistics, we find significant effects for all three policies. US monetary easing fuels cross-border lending in US dollars, as befits a global funding currency. At the same time, a tightening in the lender or the borrower country reinforces international dollar lending as global banks turn to the greenback for cheaper funding and toward borrowers abroad. Our results also show that stronger capitalization and better access to funding sources mitigate the frictions underpinning the transmission channels. Analogous results for euro-denominated lending confirm that global funding currencies play a key role in international monetary policy transmission.

Suggested Citation

  • Stefan Avdjiev & Catherine Koch & Patrick McGuire & Goetz von Peter, 2018. "Transmission of monetary policy through global banks: whose policy matters?," BIS Working Papers 737, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:737
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    References listed on IDEAS

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    1. Buch, Claudia M. & Bussierè, Matthieu & Goldberg, Linda & Hills, Robert, 2019. "The international transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 29-48.
    2. Avdjiev, Stefan & Gambacorta, Leonardo & Goldberg, Linda S. & Schiaffi, Stefano, 2017. "The shifting drivers of global liquidity," CEPR Discussion Papers 12127, C.E.P.R. Discussion Papers.
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    6. Avdjiev, Stefan & Koch, Cathérine & McGuire, Patrick & von Peter, Goetz, 2018. "Transmission of monetary policy through global banks: Whose policy matters?," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 67-82.
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    Cited by:

    1. Buch, Claudia M. & Bussierè, Matthieu & Goldberg, Linda & Hills, Robert, 2019. "The international transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 29-48.
    2. Avdjiev, Stefan & Koch, Cathérine & McGuire, Patrick & von Peter, Goetz, 2018. "Transmission of monetary policy through global banks: Whose policy matters?," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 67-82.
    3. Bryan Hardy & Felipe Saffie, 2019. "From carry trades to trade credit: financial intermediation by non-financial corporations," BIS Working Papers 773, Bank for International Settlements.
    4. Isabel Argimón, 2018. "The relevance of currency-denomination for the cross-border effects of monetary policy," Working Papers 1827, Banco de España;Working Papers Homepage.

    More about this item

    Keywords

    international banking; dollar lending; global funding currency; monetary policy transmission; international spillovers;

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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