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  • June 2020
  • Article
  • Journal of Monetary Economics

U.S. Monetary Policy and Emerging Market Credit Cycles

By: Falk Bräuning and Victoria Ivashina
  • Format:Print
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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

Global Business Cycle; Monetary Policy; Reaching For Yield; Money; Policy; Credit; Emerging Markets

Citation

Bräuning, Falk, and Victoria Ivashina. "U.S. Monetary Policy and Emerging Market Credit Cycles." Journal of Monetary Economics 112 (June 2020): 57–76.
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About The Author

Victoria Ivashina

Finance
→More Publications

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More from the Authors
  • Weak Corporate Insolvency Rules: The Missing Driver of Zombie Lending By: Bo Becker and Victoria Ivashina
  • High-Yield Debt Covenants and Their Real Effects By: Falk Bräuning, Victoria Ivashina and Ali Ozdagli
  • Loan Types and the Bank Lending Channel By: Victoria Ivashina, Luc Laeven and Enrique Moral-Benito
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