The International Transmission of Monetary Policy Through Financial Centres: Evidence from the United Kingdom and Hong Kong

44 Pages Posted: 17 Oct 2017

See all articles by Bob Hills

Bob Hills

Bank of England - International Finance Division

Kelvin Ho

Hong Kong Monetary Authority

Dennis Reinhardt

Bank of England

Rhiannon Sowerbutts

Bank of England

T. C. Wong

Hong Kong Monetary Authority - Research Department

Gabriel Wu

Hong Kong Monetary Authority

Multiple version iconThere are 2 versions of this paper

Date Written: October 13, 2017

Abstract

This paper explores the cross-border transmission of monetary policy by comparing and contrasting the results for two major international financial centres: Hong Kong and the United Kingdom. We examine the effect of monetary policy in the US, euro area and Japan, on UK and Hong Kong-resident banks’ domestic lending behaviour, using individual bank-level data. Focusing on financial interconnections and other balance sheet characteristics as a transmission mechanism, we find that both of these factors play an important role in the transmission of foreign monetary policy. We are able to establish evidence for both a bank funding and bank portfolio channel of monetary policy, for both Hong Kong and the United Kingdom. There are important differences between the two countries; in particular, the currency denomination of lending appears to play a major role only in the United Kingdom, which probably reflects Hong Kong’s linked exchange rate system by which the HK dollar is pegged with the US dollar. These results contrast to the largely inconclusive results from previous studies, whose aggregate nature may have masked offsetting individual bank effects.

Keywords: international financial linkages, monetary policy transmission, bank lending

JEL Classification: G21, E52, F42

Suggested Citation

Hills, Bob and Ho, Kelvin and Reinhardt, Dennis and Sowerbutts, Rhiannon and Wong, Tak-Chuen and Wu, Gabriel, The International Transmission of Monetary Policy Through Financial Centres: Evidence from the United Kingdom and Hong Kong (October 13, 2017). Bank of England Working Paper No. 682. Available at SSRN: https://ssrn.com/abstract=3053810 or http://dx.doi.org/10.2139/ssrn.3053810

Bob Hills (Contact Author)

Bank of England - International Finance Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Kelvin Ho

Hong Kong Monetary Authority ( email )

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

Dennis Reinhardt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rhiannon Sowerbutts

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Tak-Chuen Wong

Hong Kong Monetary Authority - Research Department ( email )

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

Gabriel Wu

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Register to save articles to
your library

Register

Paper statistics

Downloads
6
Abstract Views
141
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information