The International Transmission of Monetary Policy

Abstract

This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the U.S., euro area, Japan, and United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for U.S. policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.

The Shifting Drivers of Global Liquidity

“…Consistent with these observations, some countries with banks that were well-capitalized pre-crisis, like Canada, expanded international activities post-crisis when foreign jurisdictions tightened capital requirements (Damar and Mordel, 2017). Overviews of results from macroprudential policy spillover studies and monetary policy spillovers likewise tend to find roles for bank capitalization and business models (Buch and Goldberg, 2017;Buch, Bussiere, Goldberg and Hills, 2019).…”

“…Banks have more pronounced bank lending channel responses to liquidity risk when they have low levels of capitalization and low deposit funding shares (Cornett et al 2011;Buch and Goldberg, 2015). Evidence from a large cross-country initiative on monetary policy consequences for lending flows to nonbanks through global banks shows a mixture of bank characteristics matter, even while the effects are not always quantitatively large (Buch, Bussiere, Goldberg, and Hills, 2019).…”

Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence

“…As such, its panel also includes some countries under negative rates, e.g., Japan. However, its specification treats low positive and negative rates symmetrically Buch, et al (2018). report results for lending activity using a shadow monetary policy rate that allows coefficients on bank characteristics to vary over conventional and unconventional policy periods.…”

Le Pont de Londres: Interactions between monetary and prudential policies in cross‐border lending

“…Buch et al. (2019) summarize a cross‐country effort by the International Banking Research Network to examine the effect of monetary policy spillovers—in particular EA, US, UK, and Japanese monetary policy. Their key finding is that monetary policy has pervasive cross‐border spillover effects via banks' lending to the real economy both in conventional and unconventional monetary policy periods.…”