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Macroprudential Policy and the Inward Transmission of Monetary Policy: the case of Chile, Mexico, and Russia

Georgia Bush, Tomás Gómez, Alejandro Jara, David Moreno, Konstantin Styrin () and Yulia Ushakova

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper studies whether domestic macroprudential policy may attenuate the inward transmission of monetary-policy shocks from the U.S. to domestic banks' lending growth in three emergingmarket economies -Chile, Mexico, and Russia. Identification relies on banks' heterogeneous exposure to the prudential policies and the fact that foreign monetary policy shocks are exogenous from the perspective of these economies. After analyzing the effects of the aggregate domestic prudential policy stance, we focus on specific prudential policies targeting mortgage and consumer loans, as well as foreign-currency deposits. Although our overall results are mixed, we find evidence that the strength of international monetary policy spillovers varies depending on the stance of the domestic macroprudential policy. In particular, a tighter reserve requirement stance over foreigncurrency deposits in Chile dampens the effect of an international monetary policy shock on domestic local-currency lending, but reinforces that on foreign-currency lending, whereas in Russia, it dampens the effect on both local currency and foreign currency lending, although to different degrees. Prudential policies targeting the asset side of banks' balance sheets, such as mortgage loans or consumer credit, are found to amplify international monetary policy spillovers in some cases and attenuate in others, depending on the country context.

Date: 2020-12
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac and nep-mon
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