How Does Fiscal Policy affect the Transmission of Monetary Policy into Cross-border Bank Lending? Cross-country Evidence

Swapan-Kumar Pradhan (), Elod Takats and Judit Temesvary
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Swapan-Kumar Pradhan: https://www.bis.org/author/swapan-kumar_pradhan.htm

No 1400, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending. For instance, a reduction in the German debt-to-GDP ratio amplifies the negative impact of US monetary policy tightening on USD-denominated cross-border bank lending outflows from German banks. The interaction effects are the strongest for US monetary policy.

Keywords: Monetary policy; Government debt; Cross-border claims; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: E63 F34 F42 G21 G38 (search for similar items in EconPapers)
Date: 2024-11-25
New Economics Papers: this item is included in nep-mon and nep-opm
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Working Paper: How does fiscal policy affect the transmission of monetary policy into cross-border bank lending? Cross-country evidence (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1400

DOI: 10.17016/IFDP.2024.1400

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