Global Dollar Credit: Links to US Monetary Policy and Leverage

36 Pages Posted: 22 Jan 2015

See all articles by Robert N. McCauley

Robert N. McCauley

Bank for International Settlements (BIS)

Patrick McGuire

Bank for International Settlements (BIS)

Vladyslav Sushko

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: January 2015

Abstract

Banks and bond investors have extended $9 trillion of US dollar credit to non-bank borrowers outside the United States. This has relevance for the discussion of global liquidity and global monetary policy transmission. This paper contributes to this policy discussion by analysing the links between US monetary policy, including unconventional monetary policy, leverage and flows into bond funds, on the one hand, and dollar credit extended to non-US borrowers, on the other. We find that prior to the crisis, banks drew on low funding rates and low-cost leverage to extend dollar credit to non-US borrowers. After the Federal Reserve announced its large-scale bond purchases in 2008, however, bond investors responded to compressed long-term rates by buying dollar bonds from non-US borrowers. The balance of dollar credit transmission has shifted from global banks to global bond investors.

Keywords: US dollar, offshore credit, interest rate differentials, leverage, bond fund flows, policy rates, term premium, unconventional monetary policy

JEL Classification: E43, E51, F34, G21, G23

Suggested Citation

McCauley, Robert N. and McGuire, Patrick M. and Sushko, Vladyslav, Global Dollar Credit: Links to US Monetary Policy and Leverage (January 2015). BIS Working Paper No. 483. Available at SSRN: https://ssrn.com/abstract=2552576

Robert N. McCauley (Contact Author)

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Patrick M. McGuire

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Vladyslav Sushko

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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