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

HKIMR Working Paper No. 26/2017

45 Pages Posted: 27 Nov 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: November 21, 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 USA, 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 UK. There are important differences between the two countries; in particular, the currency denomination of lending appears to play a major role only in the UK, 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 (November 21, 2017). HKIMR Working Paper No. 26/2017. Available at SSRN: https://ssrn.com/abstract=3075024 or http://dx.doi.org/10.2139/ssrn.3075024

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

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