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

54 Pages Posted: 6 Dec 2022

See all articles by Daniel te Kaat

Daniel te Kaat

University of Groningen

Thorsten Beck

Florence School of Banking and Finance

Peter Bednarek

Deutsche Bundesbank

Natalja von Westernhagen

Deutsche Bundesbank

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Abstract

Using matched bank-firm-level data and the 2014 depreciation of the euro, we show that exchange rate depreciations can lead to higher loan supply. Large banks with high net dollar exposure do not increase their lending to non-financial firms, 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 Business Cycles, Germany

Suggested Citation

te Kaat, Daniel and Beck, Thorsten and Bednarek, Peter and von Westernhagen, Natalja, Real Effects of Exchange Rate Depreciation: The Roles of Bank Loan Supply and Interbank Markets. Available at SSRN: https://ssrn.com/abstract=4295057 or http://dx.doi.org/10.2139/ssrn.4295057

Daniel Te Kaat (Contact Author)

University of Groningen ( email )

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

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

Natalja Von Westernhagen

Deutsche Bundesbank ( email )

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

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