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Events
The International Bank Lending Channel of Monetary Policy Rates and Quantitative Easing: Credit Supply, Reach-for-Yield, and Real Effects
July 16, 2015Macro, Trade, and Finance Seminar Series

Jose Luis Peydro (Barcelona GSE, UPF) will share the results of recent research.

Speaker: José-Luis Peydró is ICREA Research Professor at UPF, Research Associate of CREI, and Barcelona GSE Research Professor. More »

Abstract: 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.

Download paper

 

Last Updated: Jul 13, 2015

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: July 16, 2015
  • Location: MC 10-100
  • Time: 12:30 - 2:00 p.m.
  • CONTACT: Shweta Mesipam
  • smesipam@worldbank.org