Monetary policy and cross-border interbank market fragmentation: lessons from the crisis

Jonathan  Swarbrick; Tobias Blattner

doi:10.1515/bejm-2019-0097

Monetary policy and cross-border interbank market fragmentation: lessons from the crisis

Jonathan Swarbrick, Tobias Blattner

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Abstract

We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases and central bank long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.

Original language	English
Pages (from-to)	323-368
Number of pages	46
Journal	The B.E. Journal of Macroeconomics
Volume	21
Issue number	1
DOIs	https://doi.org/10.1515/bejm-2019-0097
Publication status	Published - 22 Sept 2020

Keywords

Cross-border capital flows
Financial frictions
Interbank market
Monetary union
Unconventional monetary policy

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10.1515/bejm-2019-0097Licence: CC BY

Blattner_2021_JoM_Monetary-policy_CC
Copyright © 2020 Tobias S. Blattner and Jonathan M. Swarbrick, published by De Gruyter. Open Access. This work is licensed under the Creative Commons Attribution 4.0 International License.
Final published version, 1.55 MBLicence: CC BY

Cite this

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abstract = "We present a two-country model featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) asset purchases and central bank long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy.",

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Monetary policy and cross-border interbank market fragmentation: lessons from the crisis

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