International Spillovers of Monetary Policy: Evidence from France and Italy

32 Pages Posted: 14 Aug 2018

Multiple version iconThere are 2 versions of this paper

Date Written: August 2018

Abstract

In this paper we provide empirical evidence on the impact of US and UK monetary policy changes on credit supply of banks operating in Italy and France over the period 2000-2015, exploring the existence of an international bank lending channel. Exploiting bank balance sheet heterogeneity, we find that monetary policy tightening abroad leads to a reduction of credit supply at home, in particular for US monetary policy changes. Our results show that USD funding plays an important role in the transmission mechanism, especially for French banks which rely to a larger extent on USD funding. We also show that banks adjust their euro and foreign currency lending differently, thus implying that funding sources in different currencies are not perfect substitutes. This is especially the case when tensions in currency swap markets are high, thus resulting in costly cross-currency funding.

Keywords: Spillovers, Monetary Policy, International Banking

JEL Classification: E52 ; F42 ; G21

Suggested Citation

Schmidt, Julia and Caccavaio, Marianna and Carpinelli, Luisa and Marinelli, Giuseppe, International Spillovers of Monetary Policy: Evidence from France and Italy (August 2018). Banque de France Working Paper No. 689. Available at SSRN: https://ssrn.com/abstract=3230611 or http://dx.doi.org/10.2139/ssrn.3230611

Julia Schmidt (Contact Author)

Banque de France ( email )

Paris
France

Marianna Caccavaio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Luisa Carpinelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Giuseppe Marinelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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