Gabriele Ciminelli, John Rogers, Wenbin Wu, 05 March 2022

The capital flows literature does not distinguish between increases in US interest rates caused by upward revisions in the Fed economic outlook (information shocks) from those that are not (pure monetary policy shocks). This column argues that this distinction is crucial. Pure monetary policy shocks have conventional, negative effects but positive information shocks do not. The latter even drive a reallocation out of US Treasuries and into growth-sensitive US assets. If the current Fed tightening cycle is driven by expectations of stronger growth, it might not be bad news for emerging markets.

Daniel Greenwald, John Krainer, Pascal Paul, 29 July 2021

Aggregate US bank lending to firms tends to expand following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening. Based on detailed loan-level supervisory data, this column shows that these responses are almost entirely explained by large firms drawing on their bank credit lines. However, funding stability for large firms may imply that smaller firms face tighter borrowing conditions. The authors show that such a crowding out effect was at play during the COVID-19 crisis and explore the implications of such spillovers within a structural model.

Charles Abuka, Ronnie Alinda, Camelia Minoiu, José-Luis Peydró, Andrea Presbitero, 29 June 2017

Existing studies suggest that the effects of monetary policy in developing countries on credit and the real economy are weak. This column challenges this view using rich loan-level credit register data from Uganda. It shows that monetary policy tightening significantly reduces credit supply – especially for banks with greater leverage and sovereign debt exposure – and identifies spillovers on inflation and economic activity. The effects are larger in more financially developed areas, highlighting the importance of financial development for policy effectiveness.


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