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International monetary policy transmission through banks in small open economies

Simone Auer (), Christian Friedrich (), Maja Ganarin, Teodora Paligorova and Pascal Towbin

Journal of International Money and Finance, 2019, vol. 90, issue C, 34-53

Abstract: This paper studies the international transmission of monetary policy through banks in small open economies using the examples of Switzerland and Canada. We assess the inward transmission of foreign monetary policy for Switzerland and the outward transmission of domestic monetary policy for Canada. In both country cases, we focus on the international bank lending and the international portfolio channel, which make opposing predictions about how monetary policy transmits internationally through banks. Our results on the inward transmission of foreign monetary policy through banks in Switzerland are consistent with a role for the international portfolio channel, but we find no evidence for the traditional international bank lending channel. The results on the outward transmission of domestic monetary policy in Canada suggest that foreign lending by Canadian banks is affected through both channels, which work as predicted and largely balance each other.

Keywords: International banking; Monetary policy; Inward transmission; Outward transmission; Small open economies; Switzerland; Canada (search for similar items in EconPapers)
JEL-codes: E5 F21 F32 G21 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:90:y:2019:i:c:p:34-53

DOI: 10.1016/j.jimonfin.2018.08.008

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