Bank Globalization and Monetary Policy Transmission in Small Open Economies

65 Pages Posted: 21 Nov 2017

See all articles by Inhwan So

Inhwan So

Bank of Korea - Economic Research Institute

Date Written: November 20, 2017

Abstract

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

Suggested Citation

So, Inhwan, Bank Globalization and Monetary Policy Transmission in Small Open Economies (November 20, 2017). Bank of Korea 2017-33. Available at SSRN: https://ssrn.com/abstract=3074233 or http://dx.doi.org/10.2139/ssrn.3074233

Inhwan So (Contact Author)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

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