U. S. monetary policy and emerging market credit cycles
Falk Bräuning and
Victoria Ivashina ()
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Victoria Ivashina: Harvard Business School
No 17-9, Working Papers from Federal Reserve Bank of Boston
Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated primarily in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers face a 32-percentage-point greater increase in the volume of loans issued by foreign banks than borrowers from developed markets face, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographical regions and industries, and holds for non-U.S. lenders, including those with little direct exposure to the U.S. economy. Local EME lenders do not offset the foreign bank capital flows; thus, U.S. monetary policy affects credit conditions for EME firms. We show that the spillover is stronger in higher-yielding and more financially open markets, and for firms with a higher reliance on foreign bank credit.
Keywords: global business cycle; monetary policy; emerging markets; reaching for yield (search for similar items in EconPapers)
JEL-codes: E44 E52 F34 F44 G21 (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
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Working Paper: U.S. Monetary Policy and Emerging Market Credit Cycles (2018)
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