Spillover Effects of Global Monetary Shocks on Foreign Banks: Evidence From an Emerging Economy

20 Pages Posted: 19 Feb 2021

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business; Drexel University-School of Economics

Hosung Lim

The Bank of Korea; Bank of Korea - Economic Research Institute

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Date Written: July 15, 2020

Abstract

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

Jeon, Bang Nam and Lim, Hosung and Wu, Ji, Spillover Effects of Global Monetary Shocks on Foreign Banks: Evidence From an Emerging Economy (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3751800 or http://dx.doi.org/10.2139/ssrn.3751800

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Drexel University-School of Economics ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Hosung Lim

The Bank of Korea ( email )

39, Namdaemun-ro, Jung-gu
Seoul, 04531
Korea, Republic of (South Korea)

Bank of Korea - Economic Research Institute ( email )

110, 3-Ga, Namdaemunno, Jung-Gu
Seoul 100-794
Korea, Republic of (South Korea)

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

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