International spillovers of monetary policy: Evidence from France and Italy

Julia Schmidt (), Marianna Caccavaio, Luisa Carpinelli and Giuseppe Marinelli

Journal of International Money and Finance, 2018, vol. 89, issue C, 50-66

Abstract: In this paper we provide empirical evidence on the impact of US and UK monetary policy changes on credit supply of banks operating in Italy and France over the period 2000–2015, exploring the existence of an international bank lending channel. Exploiting bank balance sheet heterogeneity, we find that monetary policy tightening abroad leads to a reduction of credit supply at home, in particular for US monetary policy changes. Our results show that USD funding plays an important role in the transmission mechanism, especially for French banks which rely to a larger extent on USD funding. We also show that banks adjust their euro and foreign currency lending differently, thus implying that funding sources in different currencies are not perfect substitutes. This is especially the case when tensions in currency swap markets are high, thus resulting in costly cross-currency funding.

Date: 2018
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Working Paper: International Spillovers of Monetary Policy: Evidence from France and Italy (2018)
Working Paper: International spillovers of monetary policy: evidence from France and Italy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:89:y:2018:i:c:p:50-66

DOI: 10.1016/j.jimonfin.2018.08.011

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