Bank Globalization and Monetary Policy Transmission in Small Open Economies
65 Pages Posted: 21 Nov 2017
Date Written: November 20, 2017
This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.
Keywords: Bank Globalization, Monetary Policy, Dynamic Stochastic General Equilibrium Model, Small Open Economies
JEL Classification: E32, E44, E52, E58, F36, F62
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