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The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects

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  • Morais, Bernardo

    () (Board of Governors of the Federal Reserve System (U.S.))

  • Peydro, Jose Luis

    (Universitat Pompeu Fabra)

  • Ruiz, Claudia

    (World Bank)

Abstract

We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. We find that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than QE. Moreover, low foreign monetary policy rates and expansive QE increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates--reach-for-yield--and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign QE increases risk-taking in emerging markets more than it improves the real outcomes of firms.

Suggested Citation

  • Morais, Bernardo & Peydro, Jose Luis & Ruiz, Claudia, 2015. "The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects," International Finance Discussion Papers 1137, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1137
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    Cited by:

    1. Gräb, Johannes & Żochowski, Dawid, 2017. "The international bank lending channel of unconventional monetary policy," Working Paper Series 2109, European Central Bank.
    2. Fritz Breuss, 2016. "The Crisis Management of the ECB," WIFO Working Papers 507, WIFO.
    3. Baskaya, Yusuf Soner & di Giovanni, Julian & Kalemli-Özcan, Şebnem & Peydro, José-Luis & Ulu, Mehmet Fatih, 2017. "Capital flows and the international credit channel," Journal of International Economics, Elsevier, vol. 108(S1), pages 15-22.
    4. repec:eee:inecon:v:112:y:2018:i:c:p:50-69 is not listed on IDEAS
    5. João Barata R B Barroso & Rodrigo Barbone Gonzalez & Bernardus F Nazar Van Doornik, 2017. "Credit supply responses to reserve requirement: loan-level evidence from macroprudential policy," BIS Working Papers 674, Bank for International Settlements.
    6. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.
    7. Olivier De Jonghey & Hans Dewachter & Steven Ongenax, 2016. "Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions," Working Paper Research 303, National Bank of Belgium.
    8. Temesvary, Judit & Ongena, Steven & Owen, Ann L., 2018. "A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?," Journal of International Economics, Elsevier, vol. 112(C), pages 50-69.
    9. Luisa Carpinelli & Matteo Crosignani, 2017. "The Effect of Central Bank Liquidity Injections on Bank Credit Supply," Finance and Economics Discussion Series 2017-038, Board of Governors of the Federal Reserve System (U.S.).
    10. Charles Abuka & Ronnie K Alinda & Camelia Minoiu & José-Luis Peydró & Andrea Presbitero, 2015. "Monetary Policy in a Developing Country; Loan Applications and Real Effects," IMF Working Papers 15/270, International Monetary Fund.
    11. Jin Cao & Valeriya Dinger, 2018. "Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy?," CESifo Working Paper Series 6900, CESifo Group Munich.
    12. Agarwal, Isha & Duttagupta, Rupa & Presbitero, Andrea F., 2018. "International Commodity Prices and Domestic Bank Lending in Developing Countries," ADBI Working Papers 807, Asian Development Bank Institute.
    13. repec:eee:ecmode:v:71:y:2018:i:c:p:234-246 is not listed on IDEAS
    14. Teodora Paligorova & Horacio Sapriza & Andrei Zlate & Ricardo Correa, 2017. "Cross-border Flows and Monetary Policy," 2017 Meeting Papers 335, Society for Economic Dynamics.

    More about this item

    Keywords

    Credit channel of monetary policy; financial globalization; quantitative easing (QE); credit supply; risk-taking; foreign banks.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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