Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230329
Year of Publication: 
2020
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP04-2020
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
In this paper, we study transmission of global funding shocks to emerging economies (EMs) from the perspective of interbank markets. Money markets enable banks to engage in risk-sharing against liquidity shocks and are sensitive to global funding conditions. Accordingly, we first show that interbank rates better reflect the magnitude of transmission of foreign liquidity shocks to EMs as compared to benchmark short-term bond yields. Next, we disentangle the transmission into its various channels, focusing in particular on two pull factors associated with the domestic banking microstructure: dependence on wholesale funding and share of foreign banks. Our results indicate that money market rates in EMs react to global shocks, and that in particular dependence on wholesale funding has a significant role to play. Finally, we provide evidence that tools of macro-prudential policy like reserve requirements can help alleviate liquidity shocks to the EM banking system, weakening this global transmission.
Subjects: 
International transmission of liquidity shocks
quantitative easing
wholesale funding
interbank rates
macro-prudential policy
reserve requirements
JEL: 
E43
E44
E52
E58
F42
G15
G21
Document Type: 
Working Paper

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