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Global Liquidity and Impairment of Local Monetary Policy

Salih Fendo?lu, Eda Gül?en and Jose-Luis Peydro ()

No 1131, Working Papers from Barcelona Graduate School of Economics

Abstract: 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)
Date: 2019-12
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) Downloads
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