Global Liquidity and Impairment of Local Monetary Policy
Eda Gül?en and
Jose-Luis Peydro ()
No 1131, Working Papers from Barcelona Graduate School of Economics
We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.
Keywords: global financial cycle; monetary policy; emerging markets; banks; carry trade (search for similar items in EconPapers)
JEL-codes: G01 G15 G21 G28 F30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ara, nep-ban, nep-cba, nep-ifn and nep-mon
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Working Paper: Global liquidity and impairment of local monetary policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1131
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