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Working Paper

How Does Fiscal Policy affect the Transmission of Monetary Policy into Cross-border Bank Lending? Cross-country Evidence


Abstract: We use a rarely accessed BIS database on bilateral cross-border bank claims by bank nationality to examine the interaction of monetary and fiscal policies. We find significant interactions: the transmission of the monetary policies of major currency issuers is significantly influenced by the fiscal stance of source (home) lending banking systems. Fiscal consolidation in a source country amplifies the effect of currency issuers' monetary policy on lending. For instance, a reduction in the German debt-to-GDP ratio amplifies the negative impact of US monetary policy tightening on USD-denominated cross-border bank lending outflows from German banks. The interaction effects are the strongest for US monetary policy.

JEL Classification: E63; F34; F42; G21; G38;

https://doi.org/10.17016/IFDP.2024.1400

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File(s): File format is application/pdf https://www.federalreserve.gov/econres/ifdp/files/ifdp1400.pdf

Authors

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2024-11-25

Number: 1400