Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy

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• dc.contributor.author Fabiani, Andrea
• dc.contributor.author López Piñeros, Martha
• dc.contributor.author Peydró, José-Luis
• dc.contributor.author Soto, Paul E.
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2024-11-14T10:10:14Z
• dc.date.available 2024-11-14T10:10:14Z
• dc.date.issued 2021-08-01
• dc.date.modified 2024-11-14T10:08:24Z
• dc.description.abstract We study how capital controls and domestic macroprudential policy tame credit supply booms, respectively targeting foreign and domestic bank debt. For identification, we exploit the simultaneous introduction of capital controls on foreign exchange (FX) debt inflows and an increase of reserve requirements on domestic bank deposits in Colombia during a strong credit boom, as well as credit registry and bank balance sheet data. Our results suggest that first, an increase in the local monetary policy rate, raising the interest rate spread with the United States, allows more FX-indebted banks to carry trade cheap FX funds with more expensive peso lending, especially toward riskier, opaque firms. Capital controls tax FX debt and break the carry trade. Second, the increase in reserve requirements on domestic deposits directly reduces credit supply, and more so for riskier, opaque firms, rather than enhances the transmission of monetary rates on credit supply. Importantly, different banks finance credit in the boom with either domestic or foreign (FX) financing. Hence, capital controls and domestic macroprudential policy complementarily mitigate the boom and the associated risk-taking through two distinct channels.
• dc.format.mimetype application/pdf*
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1816
• dc.identifier.citation Journal of International Economics 139, November 2022, 103677. DOI: https://doi.org/10.1016/j.jinteco.2022.103677
• dc.identifier.uri http://hdl.handle.net/10230/68685
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 1816
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword capital controls; macroprudential and monetary policy; carry trade; credit supply; risk-taking
• dc.subject.keyword Finance and Accounting
• dc.title Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy
• dc.title.alternative
• dc.type info:eu-repo/semantics/workingPaper