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Bank Globalization and Monetary Policy Transmission in Small Open Economies

Inhwan So ()
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Inhwan So: International Department, The Bank of Korea

No 2017-33, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.

Keywords: Bank globalization; Monetary policy; Dynamic stochastic general equilibrium model; Small open economies (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 E58 F36 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
Date: 2017-11-20
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