Transmission of monetary policy and exchange rate shocks under foreign currency lending

Małgorzata Skibińska
Authors registered in the RePEc Author Service: Małgorzata Walerych

No 2017-027, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: This paper analyses the differences in reaction of domestic and foreign currencylending to monetary and exchange rate shocks, using a panel VAR model estimatedfor three biggest Central and Eastern European countries (Poland, the CzechRepublic and Hungary). Our results point toward a drop in domestic currency loansand an increase of foreign currency credit in reaction to monetary policy tighteningin Poland and Hungary, suggesting that the presence of foreign currency debtweakens the transmission of monetary policy. A currency depreciation shock leadsto an initial decline in foreign currency lending, but also in loans denominated indomestic currency as central banks react to a weaker exchange rate by increasingthe interest rates. However, after several quarters, credit in foreign currencyaccelerates, indicating that borrowers start using it to substitute for depresseddomestic currency lending.

Keywords: foreign currency loans; lending currency structure; monetary policy and exchange rate shocks; CEE countries (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
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https://hdl.handle.net/20.500.12182/1148 (application/pdf)

Related works:
Journal Article: Transmission of monetary policy and exchange rate shocks under foreign currency lending (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2017027

DOI: 10.33119/kaewps2017027

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