International Bank Lending Channel of Monetary Policy

Author/Editor:

Silvia Albrizio ; Sangyup Choi ; Davide Furceri ; Chansik Yoon

Publication Date:

November 1, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

How does domestic monetary policy in systemic countries spillover to the rest of the world? This paper examines the transmission channel of domestic monetary policy in the cross-border context. We use exogenous shocks to monetary policy in systemically important economies, including the U.S., and local projections to estimate the dynamic effect of monetary policy shocks on bilateral cross-border bank lending. We find robust evidence that an increase in funding costs following an exogenous monetary tightening leads to a statistically and economically significant decline in cross-border bank lending. The effect is weakened during periods of high uncertainty. In contrast, the effect is found to not vary according to the degree of borrower country riskiness, further weakening support for the international portfolio rebalancing channel.

Series:

Working Paper No. 19/234

Subject:

English

Publication Date:

November 1, 2019

ISBN/ISSN:

9781513518770/1018-5941

Stock No:

WPIEA2019234

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

61

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