Transmission Of Monetary Policy Via Domestic And Foreign Banks In Emerging Economies: Evidence From Bank-Level Data

This paper examines empirically the existence of a bank lending channel for the transmission of monetary policy in emerging markets, by comparing responses of domestic and foreign banks to host country monetary shocks. The authors study the loan granting and deposit taking behavior of more than 1200 banks in the emerging economies of Eastern and Central Europe, Latin America and Asia over the period 1996 - 2003, by using both pooled Ordinary Least Squares and panel Vector Autoregression methodologies. They find robust evidence for the existence of a bank lending channel: foreign banks are less responsive to domestic monetary policy shocks, that is, they adjust their loan and deposit growth rates less than their domestic counterparts.