Abstract: We show that US monetary policy is transmitted internationally through the factor structure of exchange rates. Following an unexpected easing, investment funds sell safe and buy risky currencies. Global US banks, similarly, tilt their distribution of foreign loan origination towards currencies with greater systematic risk. The effects of monetary policy on flows of foreign exchange and international bank lending persist for several months. We argue that the exchange rate factor structure is a lens through which we can understand the international transmission of US monetary policy.
Abstract: In this paper, we establish that universal banks reduce the efficacy of the monetary policy pass-through to the economy. Universal banks have access to a variety of funding sources, beyond retail deposits, which enable them to maintain a higher credit supply when the monetary policy tightens. We show that this has positive real effects on the economy as the higher credit supply by universal banks leads to lower unemployment rates in areas where they lend more. This channel is distinct from existing theories of monetary policy transmission, and we validate that the findings hold beyond a variety of alternative explanations. The results shed new light on the Fed’s execution of monetary policy, as well as how it should regulate the banking system.
Discussant: Goutham Gopalakrishna, University of Toronto
Abstract: When Federal Reserve districts experience high inflation but lack voting rights to influence FOMC decisions, Federal Reserve banks reduce the amount of credit extended via the discount window (DW). The identification strategy is based on the exogenous rotation of voting rights among Reserve Banks and on within borrower-time and district-time variations in DW loans and Federal Home Loan Bank (FHLB) loans, implying that factors related to changes in local demand for credit or changes in borrower characteristics cannot drive the results. Our findings suggest the existence of ``Local Monetary Policy'' (LMP) executed by the Federal Reserve Banks.
Discussant: Alex Hsu, Georgia Institute of Technology
