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International spillovers of monetary policy: Evidence from France and Italy

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  • Schmidt, Julia
  • Caccavaio, Marianna
  • Carpinelli, Luisa
  • Marinelli, Giuseppe

Abstract

In this paper we provide empirical evidence on the impact of US and UK monetary policy changes on credit supply of banks operating in Italy and France over the period 2000–2015, exploring the existence of an international bank lending channel. Exploiting bank balance sheet heterogeneity, we find that monetary policy tightening abroad leads to a reduction of credit supply at home, in particular for US monetary policy changes. Our results show that USD funding plays an important role in the transmission mechanism, especially for French banks which rely to a larger extent on USD funding. We also show that banks adjust their euro and foreign currency lending differently, thus implying that funding sources in different currencies are not perfect substitutes. This is especially the case when tensions in currency swap markets are high, thus resulting in costly cross-currency funding.

Suggested Citation

  • Schmidt, Julia & Caccavaio, Marianna & Carpinelli, Luisa & Marinelli, Giuseppe, 2018. "International spillovers of monetary policy: Evidence from France and Italy," Journal of International Money and Finance, Elsevier, vol. 89(C), pages 50-66.
    • Handle: RePEc:eee:jimfin:v:89:y:2018:i:c:p:50-66
    DOI: 10.1016/j.jimonfin.2018.08.011
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    6. Krokida, Styliani-Iris & Makrychoriti, Panagiota & Spyrou, Spyros, 2020. "Monetary policy and herd behavior: International evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 386-417.
    7. Matthieu Bussière & Robert Hills & Simon Lloyd & Baptiste Meunier & Justine Pedrono & Dennis Reinhardt & Rhiannon Sowerbutts, 2021. "Le Pont de Londres: Interactions between monetary and prudential policies in cross‐border lending," Review of International Economics, Wiley Blackwell, vol. 29(1), pages 61-86, February.
    8. Gajewski, Krzysztof & Jara, Alejandro & Kang, Yujin & Mok, Junghwan & Moreno, David & Serwa, Dobromił, 2019. "International spillovers of monetary policy: Lessons from Chile, Korea, and Poland," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 175-186.
    9. Meunier Baptiste & Pedrono Justine, 2021. "A Prudential trade-off? Leakages and Interactions with Monetary Policy," Working papers 805, Banque de France.
    10. Konstantin Styrin, 2018. "A Multi-Country Study of Cross-Border Transmission of Monetary Policy by IBRN," Russian Journal of Money and Finance, Bank of Russia, vol. 77(2), pages 81-94, June.
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    13. Luigi Bonatti & Andrea Fracasso & Roberto Tamborini, 2021. "Monetary and Fiscal Spillovers Across the Atlantic: The Role of Financial Markets," DEM Working Papers 2021/09, Department of Economics and Management.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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