Global Liquidity and Impairment of Local Monetary Policy

Peydró, José-Luis, Salih Fendoglu and Eda Gulsen ()
Authors registered in the RePEc Author Service: Jose-Luis Peydro

No 15273, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: F30 G01 G15 G21 G28 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-ara and nep-mon
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Working Paper: Global Liquidity and Impairment of Local Monetary Policy (2019)
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