Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/216794
Year of Publication: 
2019
Series/Report no.: 
Economic Working Paper Series No. 1680
Publisher: 
Universitat Pompeu Fabra (upf), Department of Economics and Business, Barcelona
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.
Subjects: 
global financial cycle
monetary policy
emerging markets
banks
carry trade
JEL: 
G01
G15
G21
G28
F30
Document Type: 
Working Paper

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