Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/202912 
Year of Publication: 
2017
Series/Report no.: 
Working Papers No. 17-9
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
Foreign banks' lending to firms in emerging market economies (EMEs) is large and denominated primarily 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 face a 32-percentage-point greater increase in the volume of loans issued by foreign banks than borrowers from developed markets face, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographical regions and industries, and holds for non-U.S. lenders, including those with little direct exposure to the U.S. economy. Local EME lenders do not offset the foreign bank capital flows; thus, U.S. monetary policy affects credit conditions for EME firms. We show that the spillover is stronger in higher-yielding and more financially open markets, and for firms with a higher reliance on foreign bank credit.
Subjects: 
Global business cycle
monetary policy
emerging markets
reaching for yield
JEL: 
E44
E52
F34
F44
G21
Document Type: 
Working Paper

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