Real Effects of Exchange Rate Depreciation: The Roles of Bank Loan Supply and Interbank Markets

56 Pages Posted: 5 Dec 2022 Last revised: 12 Jul 2023

See all articles by Thorsten Beck

Thorsten Beck

Florence School of Banking and Finance

Peter Bednarek

Deutsche Bundesbank

Daniel te Kaat

University of Groningen

Natalja von Westernhagen

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: November 21, 2022

Abstract

Using matched bank-firm-level data and estimating difference-in-differences regressions around the 2014 depreciation of the euro, we show that exchange rate depreciations can lead to higher loan supply by raising banks’ net worth and interbank lending. Large banks with high net dollar exposure do not increase their lending to non-financial firms directly, but—through interbank markets—to small banks without foreign-currency asset exposure but with a high share of exporting firms in their portfolio. We also find that German regions with such small banks experience higher output growth following the depreciation. These findings show the importance of banks’ balance sheet structure and interbank markets in transmitting exchange rate shocks to the real economy.

Keywords: Exchange Rates, Bank Lending, Interbank Markets, Real Effects, Regional Busi-ness Cycles, Germany

JEL Classification: E44, E52, G21, O40

Suggested Citation

Beck, Thorsten and Bednarek, Peter and te Kaat, Daniel and von Westernhagen, Natalja, Real Effects of Exchange Rate Depreciation: The Roles of Bank Loan Supply and Interbank Markets (November 21, 2022). Available at SSRN: https://ssrn.com/abstract=4282877 or http://dx.doi.org/10.2139/ssrn.4282877

Thorsten Beck

Florence School of Banking and Finance ( email )

Florence
Italy

Peter Bednarek

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
004969 9566-8972 (Phone)

HOME PAGE: http://www.bundesbank.de

Daniel Te Kaat (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Natalja Von Westernhagen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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