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Financial globalisation and bank lending: The limits of domestic monetary policy

Jin Cao, Valeriya Dinger, (2018), “Financial globalisation and bank lending: The limits of domestic monetary policy”, VoxEU, 3 Μαΐου

It has been widely accepted that banks’ credit supply to the real economy is affected by monetary policy. The well-established ‘bank lending channel’ of monetary policy states that, once monetary policy is tightened, banks face a higher funding cost in the domestic money market so they have to cut back their lending; with reduced credit available, the real economy starts to cool down. In their seminal paper, Kashyap and Stein (2000) presented solid micro-level evidence of such a channel using US data. Later, most of the bank-level studies on the lending channel have been focused on how the impact of monetary policy on bank lending varies across banks.

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