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How does the interaction of macroprudential and monetary policies affect cross-border bank lending?

Elod Takats and Judit Temesvary ()

No 782, BIS Working Papers from Bank for International Settlements

Abstract: We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant.

Keywords: monetary policy; macroprudential policy; cross-border claims; diff-in-diff analysis (search for similar items in EconPapers)
JEL-codes: F34 F42 G21 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-mac and nep-mon
Date: 2019-05
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