International Transmission of Monetary Policy Through Local Money Market Activity by Global Bank Subsidiaries
54 Pages Posted: 29 Jan 2023 Last revised: 11 May 2023
Date Written: December 24, 2022
We show that an expansive foreign monetary policy, where global banks are headquartered, increases the borrowing activity of their subsidiaries in local money markets in the countries of residence. We use a unique dataset of the Mexican money market. We report evidence that a limited flexibility in cross-border flows drives our findings, which is induced by the capital independence of the subsidiary structure of global banks in Mexico. Thus, under constrained cross-border flows, the global risk-taking channel of monetary policy transmission might still emerge, where the extra liquidity obtained by global bank subsidiaries might be used in new risky positions.
Keywords: Global banking, subsidiaries, foreign monetary policy, money markets, cross-border flows.
JEL Classification: E52, F36, F42, G15, G21
Suggested Citation: Suggested Citation