The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects

Bernardo Morais, Jose-Luis Peydro and Claudia Ruiz-Ortega ()
Additional contact information
Bernardo Morais: https://www.federalreserve.gov/econres/bernardo-c-morais.htm
Claudia Ruiz-Ortega: https://www.worldbank.org/en/about/people/c/claudia-ruiz
Authors registered in the RePEc Author Service: Claudia Ruiz Ortega

No 1137, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. We find that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than QE. Moreover, low foreign monetary policy rates and expansive QE increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates--reach-for-yield--and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign QE increases risk-taking in emerging markets more than it improves the real outcomes of firms.

Keywords: Credit channel of monetary policy; financial globalization; quantitative easing (QE); credit supply; risk-taking; foreign banks. (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G01 G21 G28 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2015-07-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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http://www.federalreserve.gov/econresdata/ifdp/2015/files/ifdp1137.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/IFDP.2015.1137 http://dx.doi.org/10.17016/IFDP.2015.1137 (application/pdf)

Related works:
Journal Article: The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach‐for‐Yield, and Real Effects (2019)
Journal Article: The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects (2019)
Working Paper: The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects (2019)
Working Paper: The international bank lending channel of monetary policy rates and QE: Credit supply, reach-for-yield, and real effects (2019)
Working Paper: The International Bank Lending Channel of Monetary Policy Rates and QE: Credit Supply, Reach-for-Yield, and Real Effects (2017)
Working Paper: The international bank lending channel of monetary policy rates and QE: Credit supply, reach-for-yield, and real effects (2015)
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