Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268841 
Year of Publication: 
2022
Citation: 
[Journal:] Journal of International Economics [ISSN:] 0022-1996 [Volume:] 139 [Issue:] November 2022 [Article No.:] 103677 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2022 [Pages:] --
Publisher: 
Elsevier
Abstract: 
We study how capital controls and domestic macroprudential policy tame credit supply booms, either directly or by enhancing the local bank-lending channel of monetary policy. We exploit credit registry data and the introduction of capital controls on foreign exchange (FX) debt inflows and increase of reserve requirements on domestic bank deposits in Colombia during a boom. We find that capital controls strengthen the bank-lending channel. Increasing the local monetary policy rate widens the interest rate differential with the U.S.; hence, relatively more FX-indebted banks carry-trade cheap FX-funds with expensive peso lending, especially towards riskier firms. Capital controls tax FX-debt and break the carry-trade. Differently, raising reserve requirements on domestic deposits directly reduces credit supply, particularly for riskier firms, rather than enhancing the bank-lending channel. Importantly, banks differentially finance credit with domestic vis-à-vis FX-financing; hence, capital controls and domestic macroprudential policy complementarily mitigate the credit boom and related bank risk-taking.
Subjects: 
capital controls
macroprudential and monetary policy
carry trade
credit supply
risk-taking
JEL: 
E52
E58
F34
F38
G21
G28
Published Version’s DOI: 
Additional Information: 
This accepted manuscript updates a preprint in RePEc: https://ideas.repec.org/p/upf/upfgen/1816.html
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.