The Dampening Effect of Bank Foreign Liabilities on Monetary Policy: Revisiting Monetary Cooperation in East Asia
Journal of International Money and Finance 31 (2): 412–427. 2012. DOI: 10.1016/j.jimonfin.2011.12.004.
22 Pages Posted: 19 Jun 2017 Last revised: 20 Nov 2017
Date Written: 2012
This paper addresses the cost of formal monetary cooperation from the perspective of monetary policy effectiveness. As banks tend to borrow from abroad in foreign currencies to fund domestic lending, monetary policy may have a reduced effect on the credit market and the economy. Results derived from bank-level data in East Asia indicate that bank foreign liabilities significantly reduce the effectiveness of the credit channel of monetary policy, implying a relatively low cost of giving up monetary autonomy.
Keywords: Bank foreign liabilities, Monetary policy, Monetary cooperation, Liability dollarization, East Asia
JEL Classification: F33, G21, E52
Suggested Citation: Suggested Citation