The Impact of the Deposit Channel on the International Transmission of Monetary Shocks
51 Pages Posted: 11 Oct 2021 Last revised: 4 May 2022
Date Written: May 3, 2022
What role do deposits play in the international transmission of US monetary policy shocks? We find that the US monetary shocks are transmitted internationally through banks' deposits. Specifically, we document that after a 1 p.p. unexpected increase in the policy rate, global banks increase deposit spreads by 0.2 p.p. and experience a 3% decline in deposit growth. Consequently, global banks increase net transfers from foreign branches by 40.4% to finance lending. It allows them to reduce lending growth by half as much as domestic banks per percent of deposit outflow. Finally, global banks contract foreign lending growth by 1.3%.
Keywords: International transmission, monetary policy, deposit channel, banking
JEL Classification: E52, F23, F34, G21
Suggested Citation: Suggested Citation