Global Liquidity and the Impairment of Local Monetary Policy Transmission

Salih Fendoglu (), Eda Gulsen () and Jose-Luis Peydro

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: We show that global liquidity limits the transmission of local monetary policy on credit markets. For identification, we exploit global liquidity shocks in conjunction with monetary policy changes and exhaustive loan-level data (the credit and international interbank market registers) from a large emerging market, Turkey. We show that softer global liquidity conditions �proxied by lower VIX or expansionary US monetary policy� attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks that borrow ex-ante more from international wholesale markets. Effects are also important for other credit margins and for bank risk-taking �especially for risky borrowers in FX loans. The mechanism at work is via a bank carry trade from international markets when local monetary conditions tighten.

Keywords: Global liquidity; Global financial cycle; Monetary policy transmission; Emerging markets; Banks (search for similar items in EconPapers)
JEL-codes: E52 F30 G01 G15 G21 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-ara, nep-ban, nep-bec, nep-cba, nep-ifn, nep-mac, nep-mon and nep-opm
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN ... g+Paperss/2019/19-13 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:1913

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().