Essays on cross-border banking flows, monetary policy, and the business cycle

Thesis

This thesis examines the influences of global banking flows and its implication on the monetary policy regimes and economic fluctuations in the recipient economies. This work is based on the view that monetary policy shocks in core countries could be transmitted to the recipient EMEs via cross-border banking flows.

Chapter 1 investigates influences of internal transactions within Asia-headquartered global banking group on the monetary policy effectiveness in selected Asian countries. It has been argued that global banks, when facing financial stress, reallocate their internal funds from their foreign affiliates in support of the parent banks. This action might help the parent banks to better protect their bank lending. In this spirit, the chapter investigates evidences suggestive of the operation of the channel for the Asian global banks.

In Chapter 2, the US monetary policy shock identified from narrative sources is applied to measure the responses of banking flows and US global banks that in­termediate cross-border interbank funding. The results suggest that the responses of US global banks and the magnitude in banking outflows are much larger than previously thought.

Chapter 3 examines an interaction between exchange rate regimes and financial crisis in EMEs triggered by a US monetary policy shock. First, an empirical evidence on the magnitude in banking outflows in EMEs in response to a US monetary policy shock is suggested. Then, an open economy model equipped with a banking sector is estimated and analyzed. The model predicts the well-known wisdom in the literature on sudden stops episodes: countries in the position of having to defend an exchange rate peg are more likely to suffer severe Sudden Stops and financial distress.

Authors: Lee, S

• DOI: 10.5287/ora-gapqgzede
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English