Monetary Policy and Global Banking / Falk Brauning, Victoria Ivashina.

Format:

Book

Author/Creator:

Brauning, Falk.

Contributor:

National Bureau of Economic Research.

Ivashina, Victoria.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23316.

NBER working paper series no. w23316

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

When central banks adjust interest rates, the opportunity cost of lending in local currency changes, but--in absence of frictions--there is no spillover effect to lending in other currencies. However, when equity capital is limited, global banks must benchmark domestic and foreign lending opportunities. We show that, in equilibrium, the marginal return on foreign lending is affected by the interest rate differential, with lower domestic rates leading to an increase in local lending, at the expense of a reduction in foreign lending. We test our prediction in the context of changes in interest rates in six major currency areas.

Notes:

Print version record

April 2017.