INTERNATIONAL CREDIT CHANNEL OF MONETARY POLICY: AN EMPIRICAL NOTE |
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| Authors: | TOMOYA SUZUKI |
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| Affiliation: | 1. Kansai University;2. This research is supported by the Grant‐in‐aid for Scientific Research (C) 18530248 from the Japan Society for the Promotion of Science. The author would like to thank Hironobu Miyazaki, Narundo Nishigaki, Glenn Otto, Chung‐Hua Shen, and an anonymous referee for constructive comments and suggestions. Also appreciated are comments from the participants of conferences and workshops where this paper was presented at various stages. Remaining errors, if any, are the author's responsibility. |
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| Abstract: | A longstanding macroeconomic issue is how monetary policy affects the real economy. There are economists placing an emphasis on the role of bank lending in monetary transmission. Their view, called the credit view, is that a monetary tightening shifts the supply schedule of bank loans left, thereby forcing bank‐dependent borrowers to cut back on expenditures. In the literature, the credit view is typically studied in a closed‐economy context. In reality, however, banks make international loans through their overseas branches and subsidiaries. This suggests that the credit view should be studied in an open‐economy context. This paper proposes the international credit view: a monetary‐policy shock originated in one country propagates to another through banks’ reallocation of funds between the two countries. For testing the hypothesis, Australia and New Zealand provide an excellent case to study. This is because Australian‐owned banks dominate the banking market in New Zealand. This paper aims to test the international credit view within a framework of vector auto‐regression models. A significant and robust finding is that the supply schedule of loans shifts left in New Zealand after a monetary tightening in Australia. |
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