US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMS?

33 Pages Posted: 8 Nov 2019

See all articles by Eugenio Cerutti

Eugenio Cerutti

International Monetary Fund (IMF); Johns Hopkins University

Carolina Osorio Buitron

International Monetary Fund (IMF)

Date Written: September 2019

Abstract

This paper analyzes the drivers of cross-border bank lending to 49 Emerging Markets (EMs) during the period 1990Q1-2014Q4, by assessing the impact of monetary, financial and real sector shocks in both the US and the euro area. The literature has traditionally highlighted the influence of US monetary policy on driving cross-border bank flows, and more recently the importance of both US and Euro Area (EA) financial/banking sectors' related variables. Our contribution is the simultaneous analysis of the role of these US and EA drivers, as well as their interactions with real sector shocks. We corroborate the negative impact of US monetary policy tightening on cross-border lending to EMs, but we find that EA monetary policy seems to have an impact mostly on Emerging Europe, reflecting the fact that cross-border lending to most other EM regions is dollar denominated. We also find that real sector shocks in both the US and EA trigger an increase in cross-border lending, but less in EA when modeling the financial sector. Finally, for financial sector shocks, such as those associated with a decrease in bank leverage, our results indicate a broad-based overall contraction of cross-border lending if the shock originates in the US, and heterogenous effects across borrowing regions if the shock originates in the EA.

Keywords: Central banking and monetary issues, Financial crises, Real sector, Reserve requirements, Market interest rates, cross-border bank lending, emerging markets, global banks, WP, sign restriction, monetary shock, cross-border, euro area, real shock

JEL Classification: F21, F34, G15, G18, G21, G28, E01, E52, K2, F16

Suggested Citation

Cerutti, Eugenio and Osorio Buitron, Carolina, US vs. Euro Area: Who Drives Cross-Border Bank Lending to EMS? (September 2019). IMF Working Paper No. 19/199. Available at SSRN: https://ssrn.com/abstract=3482282

Eugenio Cerutti (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Carolina Osorio Buitron

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
12
Abstract Views
46
PlumX Metrics