How Does the Interaction of Macroprudential and Monetary Policies Affect Cross-Border Bank Lending?

42 Pages Posted: 22 May 2019

See all articles by Előd Takáts

Előd Takáts

Bank for International Settlements (BIS)

Judit Temesvary

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2019

Abstract

We combine a rarely accessed BIS database on bilateral cross-border lending flows with cross-country data on macroprudential regulations. We study the interaction between the monetary policy of major international currency issuers (USD, EUR and JPY) and macroprudential policies enacted in source (home) lending banking systems. We find significant interactions. Tighter macroprudential policy in a home country mitigates the impact on lending of monetary policy of a currency issuer. For instance, macroprudential tightening in the UK mitigates the negative impact of US monetary tightening on USD-denominated cross-border bank lending outflows from UK banks. Vice-versa, easier macroprudential policy amplifies impacts. The results are economically significant.

Keywords: monetary policy, macroprudential policy, cross-border claims, diff-in-diff analysis

JEL Classification: F34, F42, G21, G38

Suggested Citation

Takáts, Előd and Temesvary, Judit, How Does the Interaction of Macroprudential and Monetary Policies Affect Cross-Border Bank Lending? (May 15, 2019). BIS Working Paper No. 782. Available at SSRN: https://ssrn.com/abstract=3390975

Előd Takáts (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Judit Temesvary

Board of Governors of the Federal Reserve System ( email )

1801 K Street
Washington, DC 20006
United States
202-452-3759 (Phone)

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