The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects

This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper...

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Main Authors:	Morais, Bernardo, Peydró, José-Luis, Ruiz, Claudia
Format:	Working Paper
Language:	en_US
Published:	World Bank Group, Washington, DC 2015
Subjects:	credit channels monetary policy financial globalization quantitative easing credit supply risk-taking foreign banks
Online Access:	http://hdl.handle.net/10986/21655

id	okr-10986-21655
recordtype	oai_dc
spelling	okr-10986-216552021-04-23T14:04:03Z The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects Morais, Bernardo Peydró, José-Luis Ruiz, Claudia credit channels monetary policy financial globalization quantitative easing credit supply risk-taking foreign banks This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper finds that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than quantitative easing. Moreover, low foreign monetary policy rates and expansive quantitative easing increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates -- reach-for-yield -- and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign quantitative easing increases risk-taking in emerging markets more than it improves the real outcomes of firms. 2015-03-31T15:55:27Z 2015-03-31T15:55:27Z 2015-03 Working Paper http://hdl.handle.net/10986/21655 en_US Policy Research Working Paper;No. 7216 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank Group, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Mexico
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	en_US
topic	credit channels monetary policy financial globalization quantitative easing credit supply risk-taking foreign banks
spellingShingle	credit channels monetary policy financial globalization quantitative easing credit supply risk-taking foreign banks Morais, Bernardo Peydró, José-Luis Ruiz, Claudia The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
geographic_facet	Latin America & Caribbean Mexico
relation	Policy Research Working Paper;No. 7216
description	This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper finds that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than quantitative easing. Moreover, low foreign monetary policy rates and expansive quantitative easing increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates -- reach-for-yield -- and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign quantitative easing increases risk-taking in emerging markets more than it improves the real outcomes of firms.
format	Working Paper
author	Morais, Bernardo Peydró, José-Luis Ruiz, Claudia
author_facet	Morais, Bernardo Peydró, José-Luis Ruiz, Claudia
author_sort	Morais, Bernardo
title	The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
title_short	The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
title_full	The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
title_fullStr	The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
title_full_unstemmed	The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects
title_sort	international bank lending channel of monetary policy rates and quantitative easing : credit supply, reach-for-yield, and real effects
publisher	World Bank Group, Washington, DC
publishDate	2015
url	http://hdl.handle.net/10986/21655
_version_	1764448891861729280

The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing : Credit Supply, Reach-for-Yield, and Real Effects

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