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

See all articles by Xiaofen Chen

Xiaofen Chen

Truman State University - Department of Economics

Date Written: 2012

Abstract

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

Chen, Xiaofen, The Dampening Effect of Bank Foreign Liabilities on Monetary Policy: Revisiting Monetary Cooperation in East Asia (2012). Journal of International Money and Finance 31 (2): 412–427. 2012. DOI: 10.1016/j.jimonfin.2011.12.004., Available at SSRN: https://ssrn.com/abstract=2988346

Xiaofen Chen (Contact Author)

Truman State University - Department of Economics ( email )

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