Global liquidity and impairment of local monetary policy

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

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.

Keywords: Global financial cycle; monetary policy; emerging markets; banks; carry trade (search for similar items in EconPapers)
JEL-codes: F30 G01 G15 G21 G28 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-ara and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Global Liquidity and Impairment of Local Monetary Policy (2020)
Working Paper: Global Liquidity and Impairment of Local Monetary Policy (2019)
Working Paper: Global Liquidity and Impairment of Local Monetary Policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1680

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