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

We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit s...

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Bibliographic Details
Published in:The Journal of finance (New York) 2019-02, Vol.74 (1), p.55-90
Main Authors: Morais, Bernardo, Peydró, José-Luis, Roldán Peña, Jessica, Ruiz Ortega, Claudia
Format: Article
Language:English
Subjects:
Banking
Credit
Credit policy
credit supply
Economic models
Emerging markets
financial globalization
foreign banks
International banking
Markets
Monetary policy
quantitative easing (QE)
risk-taking
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Summary:We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm-level real effects. Results support an international risk-taking channel and spill overs of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk-taking by foreign banks) and in the tightening part (with negative local firm-level real effects).
ISSN:1540-6261
0022-1082
1540-6261
DOI:10.1111/jofi.12735