Fendoğlu, SalihGülsen, EdaPeydró, José-Luis2020-03-032020-03-032019-11http://hdl.handle.net/10230/43776We show that global liquidity limits the effectiveness of local monetary policy on credit markets. The mechanism is via a bank carry trade in international markets when local monetary policy tightens. For identification, we exploit global (VIX, U.S. monetary policy) shocks and loan-level data —the credit and international interbank registers— from a large emerging market, Turkey. Softer global liquidity conditions attenuate the pass-through of local monetary policy tightening on loan rates, especially for banks with more access to international wholesale markets. Effects are also important for other credit margins and for risk-taking, e.g. riskier borrowers in FX loans or defaults.application/pdfengGlobal financial cycleMonetary policyEmerging marketsBanksCarry tradeinfo:eu-repo/semantics/workingPaperinfo:eu-repo/semantics/openAccess