| By: |
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. |
| Keywords: |
Global liquidity, Global financial cycle, Monetary policy transmission, Emerging markets, Banks |
| JEL: |
E52 F30 G01 G15 G21 |
| Date: |
2019 |
| URL: |
http://d.repec.org/n?u=RePEc:tcb:wpaper:1913&r=all |