Global dollar credit: links to US monetary policy and leverage

Robert McCauley, Patrick McGuire and Vladyslav Sushko

No 483, BIS Working Papers from Bank for International Settlements

Abstract: Banks and bond investors have extended $9 trillion of US dollar credit to non-bank borrowers outside the United States. This has relevance for the discussion of global liquidity and global monetary policy transmission. This paper contributes to this policy discussion by analysing the links between US monetary policy, including unconventional monetary policy, leverage and flows into bond funds, on the one hand, and dollar credit extended to non-US borrowers, on the other. We find that prior to the crisis, banks drew on low funding rates and low-cost leverage to extend dollar credit to non-US orrowers. After the Federal Reserve announced its large-scale bond purchases in 2008, however, bond investors responded to compressed long-term rates by buying dollar bonds from non-US borrowers. The balance of dollar credit transmission has shifted from global banks to global bond investors.

Keywords: US dollar; offshore credit; interest rate differentials; leverage; bond fund flows; policy rates; term premium; unconventional monetary policy (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-01
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (184)

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