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

Abstract

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

Bechara Bitar, Anuar and Bernales, Alejandro and Canon Salazar, Carlos I., International Transmission of Monetary Policy Through Local Money Market Activity by Global Bank Subsidiaries (December 24, 2022). Available at SSRN: https://ssrn.com/abstract=4342025 or http://dx.doi.org/10.2139/ssrn.4342025

Anuar Bechara Bitar

Bank of Mexico ( email )

Alejandro Bernales

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago
Chile

HOME PAGE: http://www.alejandrobernales.com

Carlos I. Canon Salazar (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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