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Monetary Policy and Cross-Border Interbank Market Fragmentation: Lessons from the Crisis

Tobias Blattner and Jonathan Swarbrick ()

Staff Working Papers from Bank of Canada

Abstract: We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases and central bank long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.

Keywords: Business fluctuations and cycles; Credit and credit aggregates; International financial markets; Monetary policy framework; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F36 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
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Related works:
Working Paper: Monetary policy and cross-border interbank market fragmentation: lessons from the crisis (2018) Downloads
Working Paper: Monetary policy and cross-border interbank market fragmentation: lessons from the crisis (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:20-34

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Handle: RePEc:bca:bocawp:20-34