International monetary policy transmission through banks in small open economies |
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| Institution: | 1. Bank of Canada, 234 Wellington Street, Ottawa, ON K1A 0G9, Canada;2. Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX, United Kingdom;3. MIT Sloan School of Management, 100 Main Street, Cambridge, MA 02142, United States;4. National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, United States;5. Bank of England, Threadneedle Street, London, EC2R 8AH, United Kingdom;1. Bank for International Settlements, Switzerland and London School of Economics, UK;2. Federal Reserve Board, 1801 K Street, Washington, DC 20006, USA;1. University of Southern California, University Park, Los Angeles, CA 90089-0043, USA;2. Robert M. La Follette School of Public Affairs, University of Wisconsin, 1225 Observatory Drive, Madison, WI 53706, USA;3. Department of Economics, University of Wisconsin, 1180 Observatory Drive, Madison, WI 53706, USA;4. Department of Economics, Portland State University, 1721 SW Broadway, Portland, OR 97201, USA |
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| Abstract: | This paper studies the international transmission of monetary policy through banks in small open economies using the examples of Switzerland and Canada. We assess the inward transmission of foreign monetary policy for Switzerland and the outward transmission of domestic monetary policy for Canada. In both country cases, we focus on the international bank lending and the international portfolio channel, which make opposing predictions about how monetary policy transmits internationally through banks. Our results on the inward transmission of foreign monetary policy through banks in Switzerland are consistent with a role for the international portfolio channel, but we find no evidence for the traditional international bank lending channel. The results on the outward transmission of domestic monetary policy in Canada suggest that foreign lending by Canadian banks is affected through both channels, which work as predicted and largely balance each other. |
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| Keywords: | International banking Monetary policy Inward transmission Outward transmission Small open economies Switzerland Canada |
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