Asynchronous Monetary Policies and International Dollar Credit

HKIMR Working Paper No.19/2015

36 Pages Posted: 1 Oct 2015

See all articles by Dong He

Dong He

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

T. C. Wong

Hong Kong Monetary Authority - Research Department

Andrew Tsang

Hong Kong Monetary Authority

Kelvin Ho

Hong Kong Monetary Authority

Date Written: September 30, 2015

Abstract

This paper presents a theoretical model in which the supply of international dollar credit by a global bank is responsive to unconventional monetary policies (UMPs) both in the US and its home country, the functioning of the FX swap market and the bank’s default risk. The theoretical model is tested using two unique confidential datasets. The results suggest that the contractionary effect of US monetary normalisation on global liquidity would be partly offset by the expansionary effect of UMPs in Japan and the euro-area. However, a stress testing exercise shows that global liquidity would be seriously disrupted if normalisation of monetary policy in the US leads to financial market dislocation, in particular in the FX swap market. Finally, this study finds that global banks’ risk-taking attitude, credit risk exposure, and the business model of their overseas offices are important factors affecting how dollar credit supplied by international banks would respond to UMPs.

Suggested Citation

He, Dong and Wong, Tak-Chuen and Tsang, Andrew and Ho, Kelvin, Asynchronous Monetary Policies and International Dollar Credit (September 30, 2015). HKIMR Working Paper No.19/2015. Available at SSRN: https://ssrn.com/abstract=2667330 or http://dx.doi.org/10.2139/ssrn.2667330

Dong He

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States
(202) 623-4062 (Phone)
(202) 589-4062 (Fax)

Tak-Chuen Wong (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Andrew Tsang

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
Hong Kong
Hong Kong

Kelvin Ho

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

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