Publications
Publications
- June 2020
- Journal of Monetary Economics
U.S. Monetary Policy and Emerging Market Credit Cycles
By: Falk Bräuning and Victoria Ivashina
Abstract
Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated predominantly in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers experience a 32-percentage-point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographic regions and industries and holds for U.S. and non-U.S. lenders, including those with little direct exposure to the U.S. economy. Local EME lenders do not offset the foreign bank capital flows; thus, U.S. monetary policy affects credit conditions for EME firms. We show that the spillover is stronger in higher-yielding and more financially open markets and for firms with a higher reliance on foreign bank credit.
Keywords
Citation
Bräuning, Falk, and Victoria Ivashina. "U.S. Monetary Policy and Emerging Market Credit Cycles." Journal of Monetary Economics 112 (June 2020): 57–76.