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.date.accessioned 2023-02-27T12:56:34Z
• dc.date.issued 2022
• dc.description.abstract We study how capital controls and domestic macroprudential policy tame credit supply booms, either directly or by enhancing the local bank-lending channel of monetary policy. We exploit credit registry data and the introduction of capital controls on foreign exchange (FX) debt inflows and increase of reserve requirements on domestic bank deposits in Colombia during a boom. We find that capital controls strengthen the bank-lending channel. Increasing the local monetary policy rate widens the interest rate differential with the U.S.; hence, relatively more FX-indebted banks carry-trade cheap FX-funds with expensive peso lending, especially towards riskier firms. Capital controls tax FX-debt and break the carry-trade. Differently, raising reserve requirements on domestic deposits directly reduces credit supply, particularly for riskier firms, rather than enhancing the bank-lending channel. Importantly, banks differentially finance credit with domestic vis-à-vis FX-financing; hence, capital controls and domestic macroprudential policy complementarily mitigate the credit boom and related bank risk-taking.
• dc.description.sponsorship Project supported by a 2018 Leonardo Grant for Researchers and Cultural Creators, BBVA Foundation, by the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (grant agreement No 648398), from the PGC2018-102133-B-I00 (MCIU/AEI/FEDER, UE) grant and the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563).
• dc.format.mimetype application/pdf
• dc.identifier.citation Fabiani A, López M, Peydró JL, Soto PE. Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy. Journal of International Economics. 2022 Nov;139:103677. DOI: 10.1016/j.jinteco.2022.103677
• dc.identifier.doi http://dx.doi.org/10.1016/j.jinteco.2022.103677
• dc.identifier.issn 0022-1996
• dc.identifier.uri http://hdl.handle.net/10230/55938
• dc.language.iso eng
• dc.publisher Elsevier
• dc.relation.ispartof Journal of International Economics. 2022 Nov;139:103677
• dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/648398
• dc.relation.projectID info:eu-repo/grantAgreement/ES/1PE/SEV-2015-0563
• dc.relation.projectID info:eu-repo/grantAgreement/ES/2PE/PGC2018-102133-B-I00
• dc.rights © Elsevier http://dx.doi.org/10.1016/j.jinteco.2022.103677
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.subject.keyword Capital controls
• dc.subject.keyword Macroprudential and monetary policy
• dc.subject.keyword Carry trade
• dc.subject.keyword Credit supply
• dc.subject.keyword Risk-taking
• dc.title Capital controls, domestic macroprudential policy and the bank lending channel of monetary policy
• dc.type info:eu-repo/semantics/article
• dc.type.version info:eu-repo/semantics/acceptedVersion