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U.S. Monetary Policy and Emerging Market Credit Cycles

Falk Bräuning and Victoria Ivashina

No 25185, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated predominantly 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 experience a 32-percentage-point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets, followed by a fast credit contraction of a similar magnitude upon reversal of the U.S. monetary policy stance. This result is robust across different geographies and industries, and holds for U.S. and non-U.S. lenders, including those with little direct exposure to the U.S. economy. EME local lenders do not offset the foreign bank capital flows, and U.S. monetary policy affects credit conditions for EME firms, both at the extensive and intensive margin. Consistent with a risk-driven credit-supply adjustment, we show that the spillover is stronger for riskier EMEs, and, within countries, for higher-risk firms.

JEL-codes: E52 F34 F44 G21 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-mac and nep-mon
Note: CF
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Published as Falk Bräuning & Victoria Ivashina, 2019. "U.S. Monetary Policy and Emerging Market Credit Cycles," Journal of Monetary Economics, .

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Journal Article: U.S. monetary policy and emerging market credit cycles (2020) Downloads
Working Paper: U. S. monetary policy and emerging market credit cycles (2017) Downloads
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