The Impact of the Deposit Channel on the International Transmission of Monetary Shocks


What role do deposits play in the international transmission of US monetary policy shocks? We find that the US monetary shocks are transmitted internationally through banks' deposits. Specifically, we document that after a 1 p.p. unexpected increase in the policy rate, global banks increase deposit spreads by 0.2 p.p. and experience a 3% decline in deposit growth. Consequently, global banks increase net transfers from foreign branches by 40.4% to finance lending. It allows them to reduce lending growth by half as much as domestic banks per percent of deposit outflow. Finally, global banks contract foreign lending growth by 1.3%.

Presented at: MFA, OCC Symposium on Systemic Risk*, Wharton-INSEAD Doctoral Consortium, FMCG, Sveriges Riksbank PhD Workshop in Money and Finance, Trans-Atlantic Doctoral Conference, Asian FA*

*denotes presentation by co-author

Sergey Sarkisyan
Sergey Sarkisyan
Ph.D. Candidate in Finance

My research interests include financial intermediation, debt markets, and monetary policy