Spillover Effects of Global Monetary Shocks on Foreign Banks: Evidence From an Emerging Economy
20 Pages Posted: 19 Feb 2021
Date Written: July 15, 2020
This paper examines spillover effects of global monetary shocks on lending by foreign banks in an emerging country, South Korea. Foreign banks play a significant role by providing additional domestic credit and foreign currency liquidity and directing international capital flows via the banking sector. Using macroeconomic and banking data for the period of 2000Q1-2016Q2, we present evidence that foreign bank branches in Korea have responded in providing their foreign currency loans with one quarter (3-month) time lag to the changes in monetary policies in their home countries (mainly, the US and the Euro area). This short-run spillover effect of monetary policy shocks from the home countries to foreign banks in Korea seems consistent with our bank-level data analysis. The paper also discusses useful policy implications.
Keywords: Foreign bank, Global monetary shock spillover, Emerging markets
JEL Classification: E44, F43, G21
Suggested Citation: Suggested Citation