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Global Liquidity and the Impairment of Local Monetary Policy Transmission

Author

Listed:
  • Salih Fendoglu
  • Eda Gulsen
  • Josè-Luis Peydro

Abstract

We show that global liquidity limits the transmission of local monetary policy on credit markets. For identification, we exploit global liquidity shocks in conjunction with monetary policy changes and exhaustive loan-level data (the credit and international interbank market registers) from a large emerging market, Turkey. We show that softer global liquidity conditions �proxied by lower VIX or expansionary US monetary policy� attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks that borrow ex-ante more from international wholesale markets. Effects are also important for other credit margins and for bank risk-taking �especially for risky borrowers in FX loans. The mechanism at work is via a bank carry trade from international markets when local monetary conditions tighten.

Suggested Citation

  • Salih Fendoglu & Eda Gulsen & Josè-Luis Peydro, 2019. "Global Liquidity and the Impairment of Local Monetary Policy Transmission," Working Papers 1913, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:1913
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2019/19-13
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    Citations

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    Cited by:

    1. Fabiani, Andrea & López-Piñeros, Martha & Peydró, José-Luis & Soto, Paul E., 2022. "Capital Controls, Domestic Macroprudential Policy and the Bank Lending Channel of Monetary Policy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 139(November ), pages 1-1.
    2. Kadırgan, Can & Özlü, Pınar, 2023. "Financial crisis, global liquidity and trade credit channel: Evidence from Türkiye," Emerging Markets Review, Elsevier, vol. 57(C).

    More about this item

    Keywords

    Global liquidity; Global financial cycle; Monetary policy transmission; Emerging markets; Banks;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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