Federal Reserve Bank of Boston
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Boston, MA 02210
Institutional Affiliation: Federal Reserve Bank of Boston
Information about this author at RePEc
NBER Working Papers and Publications
|October 2018||U.S. Monetary Policy and Emerging Market Credit Cycles|
with Victoria Ivashina: w25185
Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated predominantly in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers experience a 32-percentage-point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets, followed by a fast credit contraction of a similar magnitude upon reversal of the U.S. monetary policy stance. This result is robust across different geographies and industries, and holds for U.S. and non-U.S. lenders, including those with little direct exposure to the U.S. economy. EME local lenders do not offset the foreign bank capital flows, and U.S. monetary policy affec...
Published: Falk Bräuning & Victoria Ivashina, 2019. "U.S. Monetary Policy and Emerging Market Credit Cycles," Journal of Monetary Economics, .
|April 2017||Monetary Policy and Global Banking|
with Victoria Ivashina: w23316
When central banks adjust interest rates, the opportunity cost of lending in local currency changes, but—in absence of frictions—there is no spillover effect to lending in other currencies. However, when equity capital is limited, global banks must benchmark domestic and foreign lending opportunities. We show that, in equilibrium, the marginal return on foreign lending is affected by the interest rate differential, with lower domestic rates leading to an increase in local lending, at the expense of a reduction in foreign lending. We test our prediction in the context of changes in interest rates in six major currency areas.