Geopolitics Meets Monetary Policy: Decoding Their Impact on Cross-Border Bank Lending

Swapan-Kumar Pradhan (), Viktors Stebunovs, Elod Takats and Judit Temesvary
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Swapan-Kumar Pradhan: https://www.bis.org/author/swapan-kumar_pradhan.htm

No 1403, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use bilateral cross-border bank claims by nationality to assess the effects of geopolitics on cross-border bank flows. We show that a rise in geopolitical tensions between countries — disagreements in UN voting, broad sanctions, or sentiments captured by geopolitical risk indices — significantly dampens cross-border bank lending. Elevated geopolitical tensions also amplify the international transmission of monetary policies of major central banks, especially when geopolitical tensions coincide with monetary policy tightening. Overall, our results suggest that geopolitics is roughly as important as monetary policy in driving cross-border lending.

Keywords: Monetary policy; Geopolitical tensions; Cross-border claims; Diff-in-diff estimations (search for similar items in EconPapers)
JEL-codes: E52 F34 F42 F51 F53 G21 (search for similar items in EconPapers)
Date: 2025-02-12
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-int and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1403

DOI: 10.17016/IFDP.2025.1403

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