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

No 1226, BIS Working Papers from Bank for International Settlements

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.

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
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-opm
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Related works:
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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