2025地緣政治與貨幣政策：解讀其對跨境銀行貸款的影響（英）

BISWorkingPapers

No1247

Geopoliticsmeetsmonetarypolicy:decodingtheirimpactoncross-borderbanklending

bySwapan-KumarPradhan,ViktorsStebunovs,El?dTakátsandJuditTemesvary

MonetaryandEconomicDepartment

March2025

JELclassification:E52,F34,F42,F51,F53,G21.

Keywords:Monetarypolicy,geopoliticaltensions,cross-borderclaims,difference-in-differences.

BISWorkingPapersarewrittenbymembersoftheMonetaryandEconomicDepartmentoftheBankforInternationalSettlements,andfromtimetotimebyothereconomists,andarepublishedbytheBank.Thepapersareonsubjectsoftopicalinterestandaretechnicalincharacter.TheviewsexpressedinthemarethoseoftheirauthorsandnotnecessarilytheviewsoftheBIS.

ThispublicationisavailableontheBISwebsite

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? BankforInternationalSettlements2025.Allrightsreserved.Briefexcerptsmaybereproducedortranslatedprovidedthesourceisstated.

ISSN1020-0959(print)

ISSN1682-7678(online)

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GeopoliticsMeetsMonetaryPolicy:

DecodingTheirImpactonCross-BorderBankLending*

Swapan-KumarPradhan ViktorsStebunovs

BankforInternationalSettlements FederalReserveBoardBasel,CH Washington,DC,USA

Swapan-Kumar.Pradhan@

Viktors.stebunovs@

El?dTakáts JuditTemesvary

BankforInternationalSettlements FederalReserveBoardBasel,CH Washington,DC,USA

elod.takats@

Judit.temesvary@

Abstract:Weusebilateralcross-borderbankclaimsbynationalitytoassesstheeffectsofgeopoliticsoncross-borderbankflows.Weshowthatariseingeopoliticaltensionsbetweencountries—disagreementsinUNvoting,broadsanctions,orsentimentscapturedbygeopoliticalriskindices—significantlydampenscross-borderbanklending.Elevatedgeopoliticaltensionsalsoamplifytheinternationaltransmissionofmonetarypoliciesofmajorcentralbanks,especiallywhengeopoliticaltensionscoincidewithmonetarypolicytightening.Overall,ourresultssuggestthatgeopoliticsisroughlyasimportantasmonetarypolicyindrivingcross-borderlending.

Keywords:Monetarypolicy;Geopoliticaltensions;Cross-borderclaims;Diff-in-diffestimationsJELCodes:E52;F34;F42;F51;F53;G21

*TheviewsexpressedinthispaperaresolelythoseoftheauthorsandshallnotbeinterpretedasreflectingtheviewsoftheBoardofGovernorsoftheFederalReserveSystemoroftheBankforInternationalSettlements(BIS).WethankJessicaYeforexcellentassistance.WearegratefulforcommentsfromDarioCaldaraandGoetzvonPeter,fromcolleaguesattheBISandtheFederalReserveBoard,andfromseminarparticipantsattheBIS,HamiltonCollege,theHungarianEconomicAssociationandtheInternationalMonetaryFund.

Introduction

Geopoliticalrisksandtensionshavesoaredoverthepastdecades:wehavewitnessedtheproliferationofgeopoliticalfragmentationandevenwars.Thesegeopoliticaltensionsthreateneconomicactivityastheydriveuncertaintyhigheranddiverttradeandinvestmentsalonggeopoliticalfaultlines.Therealizationofgeopoliticalrisks,suchassanctionsorwars,furtherweighsonmacroeconomicoutcomesacrosstheworld.Notwithstanding,theeffectsofgeopoliticsinshapingcapitalflows,inparticularbankflows,havebeenlittlestudiedsofar.Indeed,howlargeistheimpactofthesegeopoliticaleffectsoncross-borderbanklending?Dotheystrengthenorweakentheimpactofmonetarypolicyofmajorcentralbanksoncross-borderbanklending?

Westudythesequestionsbyfocusingonthreemeasuresofgeopoliticaltensionsandrisks:

(1)UNvotingdisagreementbetweencountrypairs,capturedbyanidealpointdistancefollowingtheBaileyetal.(2017)methodology,whichweconsiderameasureofmaterializedgeopoliticaltensions;(2)trade,financial,military,andotherbilateralsanctions,whichserveasanothermeasureofmaterializedgeopoliticaltensions;and(3)apotentialprecursorofgeopoliticalfragmentationandbroadsanctions:geopoliticalriskinlenderandborrowercountries,capturedbyCaldaraandIacoviello(2022)’sgeopoliticalriskindices(GPRs).

Wefindthatgeopoliticsaffectscross-borderbankflowsinaneconomicallyandstatisticallysignificantway.Theriseingeopoliticaltensionsdirectlydampenscross-borderbanklendingandalsoamplifiestheinternationaltransmissionofmonetarypolicy.Boththedirecteffectsandtheinteractioneffectswithmonetarypolicyarestrongerformaterializedgeopoliticaltensions(i.e.bilateralUNvotingdisagreementandbilateralsanctions)thanforunrealizedgeopoliticaltensions(asmeasuredbythedifferenceinGPRsofcountrypairsorbyGPRsofborrowercountries).Specifically,weshowthatUNvotingdisagreementhasthelargesteffect,followedbysanctions.

Toprovidecontext,wealsoestimatetheinternationaltransmissionofmonetarypolicyofmajorcentralbanks,identifiedinTakatsandTemesvary(2020).Thesemonetarypolicyeffectsprovideabenchmarkforgeopoliticaleffects:theresultssuggestthatgeopoliticsisassignificantasmonetarypolicyindrivingcross-borderbanklending.

Weinvestigatethejointeffectsofgeopoliticaltensionsandmonetarypolicybasedonthebanklendingchannel(KashyapandStein,2000).Thebanklendingchannelpositsthatariseininterestrates,andthesubsequenttighteninginliquidityconditionsaffectconstrainedbanksmore.Theintensificationofgeopoliticaltensionscouldfurtheraffectconstrainedbanksmore,astheymightbeperceivedtobeevenriskierinthenewenvironment-andassuch,thesebanksmightfindacquiringadditionalliquiditymorecostly.Hence,constrainedbankscouldcuttheirlendingevenmorewhengeopoliticaltensionsandmonetarytighteningcoincide.

Ourempiricalresultssupportthebanklendingchannel-basedtheory:geopoliticaltensionsamplifytheinternationaltransmissionofmonetarypolicyandtheinteractionisparticularlystrongwhenariseingeopoliticaltensionscoincidewithmonetarypolicytightening.Weshowthattheinteractioneffectofmonetarypolicyandgeopoliticsexplainsnearlyasmuchofthevariationinbilaterallendingflowsasmonetarypolicyalonedoes–andisparticularlypotentinthecontextofrisinginterestratesandworseninggeopoliticaltensions.Theinteractioneffectsareagainstrongerformaterializedgeopoliticaltensionsthanforunrealizedtensions.

Ouruniqueidentificationstrategyreliesonthecurrencydimensionoftheinternationalbanklendingchannel:monetarypolicyofacurrencyissuerwillaffectcross-borderflowsinthatcurrencyevenwhenneitherthelenderbankingsystemnortheborrowers’countryusesthecurrencyasitsown.Inotherwords,welookatcross-borderbanklendingflowsbetweenthird-countrypairs.Asanexample,welookathowU.S.monetarypolicyinteractswithgeopolitical

tensionsbetweentheU.K.andRussiaindrivingU.K.banks’dollarlendingtoborrowersinRussia.Wepositthatmonetarypoliciesofreservecurrencyissuersareindependentofgeopoliticaltensionsamongthird-partycountries.Inourexample,U.S.monetarypolicyisindependentofthegeopoliticaltensionsbetweentheU.K.andRussia.Therefore,ourapproachavoidsconfoundingmonetarypolicyandgeopoliticaltensions

.1

Ouridentificationstrategyisaffordedbydetaileddataonthenetworkofcross-borderbankclaimsoflendingbankingsystemsonbankandnon-bankborrowersinindividualforeigncountriesbycurrencydenomination(USD,EUR,JPY,GBPandCHF).

2

ThesedataareonlyaccessibleattheBIS.Wecombinethebankflowdatawith(1)countrypair-specificquarterlymeasuresofgeopoliticaltensionsandrisk;and(2)withshadowpolicyinterestratemeasuresforUSD,EUR,JPY,GBPandCHFfromKrippner(2024).

Ourfindingsarerobusttoextensiverobustnesschecks.Theresultsholdacrosslendingtobothfinancialandnon-financialborrowers;acrossborrowersinadvancedandemergingeconomies;andwhenaccountingforcross-currencymonetarypolicyeffectsandcommontrendsingeopoliticalrisk.

1Tofurtherstrengthenouridentification,weexcludeeachreservecurrencyissuercountry’sbankingsystem’slendingintheirowncurrency.Asanexample,weexcludeU.S.banks’lendinginU.S.dollarswhichcouldhaveconfoundingeffectswithU.S.monetarypolicy.Wealsocontrolforsourcecountrymonetarypolicyandcurrencyvaluation.Finally,asfiscalpolicyhasnotableeffectsonmonetarypolicytransmission(Pradhanetal,2024),weaccountforfiscalpolicyeffectsviainclusionoffiscalcontrols(inlevelsandinteractions)andextensivefixedeffects.

2WeusegranulardatafromtheStage1andStage2enhancementstotheinternationallocationalbankingstatisticsbynationality(LBSN)oftheBIS.Ourdataischaracterizedas“unrestricted”–bydefinition,includingallconfidentialobservationsthatreportingcountriesprovidedforuseonlybytheBIS.Stage1enhancementsincludeabreakdownofcounterpartiesbycountryandlocalcurrencypositionsbybanknationality,startingfrom2012:Q2,alsocoveringcounterpartysectorbreakdownssuchasbanks,interoffice,centralbanks,unrelatedbanks,andaggregatednonbanks.Stage2enhancements,introducedin2013:Q4,addasubsectorbreakdownforthenonbanksector,distinguishingbetweennon-bankfinancialinstitutionsandnon-financialsectors,withfurtherdetails,onanencouragedbasis,forcorporates,governments,andhouseholds.

Ourresultsarepolicyrelevant.Forpolicymakersinreservecurrency-issuingcountries,understandingtheeffectsofgeopoliticaltensionsonmonetarypolicytransmissioncanhelpgaugechangesingloballiquidityconditionsintheircurrency.Forpolicymakersinthesourcecountriesoflendingbanks,understandingtheeffectsofgeopoliticaltensionscanhelpgaugecross-borderbanklendingactivitiesoftheirbanksandthus,domesticcreditconditions.Forpolicymakersinborrowers’countries,understandingtheeffectsofgeopoliticaltensionscanhelpgaugecreditsupplyviacross-borderbanklendingtotheircountry,tobettermanageperiodsofvolatilebankflows.

Thepaperproceedsasfollows.InSection2,wereviewourcontributionsinthecontextoftherelatedliterature.InSections3and4,wedescribethedataandmethods.InSections5and6,wedetailresults,discussimplications,andofferrobustnesschecks.WeconcludeinSections7.

Literaturereviewandhypothesisdevelopment

Wedevelopourhypothesesinthecontextoftwostrandsoftheliterature:1)papersonthebanklendingchannelanditsinternationalextension;and2)studiesoftheeffectsofvariousfactors,includinggeopoliticalriskandtensions,oninternationalfinancialcapitalflows.Wealsodrawonconcepts,hypotheses,anddatafromotherliteraturestrands.

TheconceptofthebanklendingchannelofmonetarypolicyinthedomesticcontextoriginatesfromKashyapandStein(2000).Thebanklendingchannelpositsthatariseinmonetarypolicyratesincreasesthecostofborrowingforbanksacrosstheboard;however,balancesheet-constrainedbanks(e.g.thosewithlowerliquidityorcapital)seealargercostincrease,duetobeingperceivedasriskierbyinvestorsinfinancialmarkets.Asaresult,thesebankscuttheirlending

morethantheirunconstrainedpeers.Subsequently,papersontheinternationalimpactofdomesticmonetarypolicyhaveidentifiedcross-borderbanklendingasaspilloverchannel(CetorelliandGoldberg,2012;ForbesandWarnock,2012;BrunoandShin,2015a;2015b;Temesvaryetal.,2018).

Focusingonthebanklendingchannel,TakatsandTemesvary(2020)identifythecurrencydimensionoftheinternationalbanklendingchannel(CDIBL):ariseininterestratesassociatedwithareservecurrencyreducescross-borderlendinginthatcurrencyacrosstheglobe,evenamongcounterpartiesthatdonotusethatcurrencyastheirown.Morebroadly,studyinglendinginvariouscurrencies,severalpapershaveshownthatthemonetarypolicyofacurrencyissuercanalsotransmitintolendinginthatcurrencyinforeigncountriesviavariouschannels(Ongenaetal.,2021;AvdjievandTakats,2019).BasedontheCDIBL,ourHypothesis1positsthatatighteninginthemonetarypolicyassociatedwithareservecurrencyoflendingleadstosubsequentlylowerbilateralcross-borderlendingflowsinthatcurrency.Theseeffectscanbeparticularlystrongforbankingsystemsexposedtoheightenedgeopoliticalrisk.Thesebanks,duetotheheighteneduncertaintyarisingfromgeopoliticalescalation,canseeadisproportionalriseinfundingcostsinglobalfinancialmarkets,causingthemtoadjusttheirlendingflowsmore.Therefore,weexpectthenegativelendingeffectsofmonetarypolicytobestrongeramongcountrypairswithhighergeopoliticaltensionsorrisk.

Thesecondstrandofliteraturethatwebuilduponfocusesontheimpactoffactorsotherthanmonetarypolicyoncross-borderlending.Whilealargebodyofliteraturehasstudiedsourceandborrowers’country-specificdriversofcross-borderbanklending(DeHaasandvanLelyveld,2014;RoseandWieladek,2014;CetorelliandGoldberg,2012;GiannettiandLaeven,2012;DeHaasandvanHoren,2012;Buchetal.,2014;Ceruttietal.,2015;Ceruttietal.,2017),papersthat

examinetheroleofgeopoliticalriskandtensionsinbanks’cross-borderlendingdecisionsarestillrelativelyscarce.Forexample,Catalanetal.(2024)analyzetheeffectsofgeopoliticaltensionsoncapitalflowsinagravitymodelandshowthatrisinggeopoliticaltensionsleadtoadeclineanddiversionofinvestment.Oflesserrelevanceforus,GoldbergandHannaoui(2024)andFerbermayretal.(2020)studyhowgeopoliticaltensionsandfinancialsanctions,respectively,affecttheshareofU.S.dollarsinforeignofficialreserves.NiepmannandShen(2024)showthatwhengeopoliticalriskincreases,domesticlendingbyU.S.banksisnegativelyaffected.

Otherstrandsoftheliteratureprovidemoregroundforhypothesisdevelopment.Forexample,intheinternationaltradeliterature,BosoneandStamato(2024)showthatgeopoliticalfragmentationweighsoninternationaltradeinmanufacturedgoods.Febermayretal.(2020)introduceacomprehensiveglobalsanctionsdatabase.Syropoulosetal.(2024)updatethisdatabaseanddocumentadramaticincreaseinthenumberofsanctionsoverthe2019-22period.Theauthorsalsoapplyagravitymodelandfindthatbilateraltradesanctionssignificantlylimitinternationaltrade.Afesorgbor(2019)studiesthedifferentialeffectsofthreatenedvs.imposedsanctions.Inthemacroeconomicliterature,Fernández-Villaverdeetal(2024)showthatgeopoliticalfragmentationnegativelyimpactstheglobaleconomy.CaldaraandIacoviello(2022)developaseminalnews-basedmeasureofgeopoliticalrisksandshowthatsuchriskscausedeclinesinemploymentandeconomy-wideandfirm-levelinvestment.Wangetal.(2019)showanegativerelationshipbetweengeopoliticalriskandfirm-levelinvestment,too.Onthefinanceside,Afonsoetal.(2024)findthatgeopoliticaltensionscontributetotheriseofEuropeancountries’sovereignriskandthatthisrelationshipismorepronouncedduringturbulenttimes.Yilmazkuday(2024)showsthatanadverseshocktoglobalgeopoliticalriskreducesstockpricesintheyearfollowingtheshockina

numberofcountries,andthatthisstockpriceresponsedependsonthecountry’sinvolvementinthegeopoliticalevent.

Buildingontheaboveliterature,inourHypothesis2,wepositanegativerelationshipbetweenourmeasuresofgeopoliticaltensions/riskandcross-borderbankflows.Theconjecturednegativerelationshipbetweengeopoliticaltensions/riskandbanklendingflowsisconsistentwithCatalanetal.(2024)’sfindingsforUNvotingdisagreement.

Furthermore,basedonthetwostreamsofliteraturedescribedabove,weconjectureinourHypothesis3thatthenegativeconnectionbetweenincreasinggeopoliticaltensions/riskandcross-borderbanklendingisparticularlystrongintighteningmonetarypolicyenvironments.Thishypothesisisnovelbutisalsointuitive:borrowereconomiesfaceadoublewhammyasescalatinggeopoliticaltensionsboostuncertainty.Tighterfinancialconditionsmakeithardertocopewiththisincreaseduncertainty,ascontractionarymonetarypolicyaggravatesthecostofacquiringliquidity.Therefore,followingamonetarypolicytightening,bankscutbacklendingtoborrowersincountriesaffectedbygeopoliticaltensionsespeciallyhard.

Data

Dependentvariable:Cross-borderbankflows

WeusegranularbilateraldatafromtheBISinternationalbankingstatisticsbynationality(LBSN)(see,TakatsandTemesvary,2020;2021).Thisdatasetincludesrestricted(onlyforsharingamongreportingcountries)aswellasconfidentialobservations(thatreportingcountriesprovideonlyforusebythe

BIS.3

Italsooffersabreakdownofcounterpartiesbycountryandlocalcurrency

3However,sincelate2015,theBISreleasessomeofthesedata,butwithalimitedscopeforconfidentialityreasons(seeAvdjievetal.,2015).Asignificantshareofthereportedbilateraldataremainsrestrictedandconfidential.TheBISceasedreceivingdatafrompublicauthoritiesinRussiaafter28February2022.

positionsbybanknationality,startingfrom2012:Q2.Thedatasetcoverscounterpartysectorbreakdownssuchasbanks,interoffice,centralbanks,unrelatedbanks,andaggregatednonbanks.Beginning2013:Q4,thedataincludeasubsectorbreakdownforthenonbanksector,distinguishingbetweennon-bankfinancialinstitutionsandnon-financialsectors.

Ouruseofnationality-baseddataratherthanresidence-baseddataissuitableasweassessthatthestrongestgeopoliticaleffectsonabankoccuratthelevelofthedecision-makingunit,i.e.thebankingconglomerateasawhole.Asanexample,abankwillreacttoasanctionimposedbyitsheadquarterjurisdictionmorestronglythantoasimilarsanctionimposedinthejurisdictionofoneofitssubsidiaries.Inotherwords,weareinterestedinhowgeopoliticaldevelopmentsinthehomecountryoftheparentbank,onaconsolidatedbasis,affectitslendingdecisionsvis-à-visborrowers’countries.

4

WefocusonmajorlendersamongadvancedeconomiesthatincludetheU.S.andEuropeanbanklendingsystems.Ourlendingsampleconsistsofbilateralcross-borderexposuresoftheselendingbankingsystemstoborrowersinover180countriesduringthe2012:Q2–2023:Q4period.Asdescribedabove,foreachlendingbankingsystemandcountryofborrowers,ourdatasetisbrokendownbycurrencydenominationandborrowersector.Wefocusonthetopfivecurrenciesofgloballending(USD,EUR,JPY,GBP,andCHF)andthetwomaintargetsectorsofborrowers(banksandnon-banks).Wealsoseparateouttheinterofficesub-categoryfromthe“banks”targetsectoranddelineatenon-bankfinancialinstitutions(NBFIs)fromthenon-financialsector(NFS)inthe“non-banks”targetsector.

Thisdatasetisuniqueasitsimultaneouslyprovidesanoverlayofthefourdimensionsthatweneedtoanswerourresearchquestions:(A)thecurrencycompositionofcross-borderclaims;

4Otherpapersinthebankingliteraturealsopositthatlendersconductriskmanagementatthehighestlevelofconsolidation—forexample,seeLeeetal.(2022).

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(B)theresidenceofborrowers,(C)thesectorbreakdownofborrowers,and(D)thenationalityoflendingbankingsystems.Dimension(A),currencycomposition,allowsustomaptherelevantnetworksandflowsineachcurrency,thatis,tomapbilateralclaimsinUSD,EUR,JPY,GBP,andCHFandtheirevolutionovertime,purgedofvaluationeffects.Dimension(B),theresidenceofborrowers,enablesustoaccountforthe(borrowers’)country-specificdriversofcross-borderbanklending.Assuch,wecanevenapplyborrowers’country*timefixedeffectsinmostofourestimationstoaccountforchangesincreditdemand.Dimension(C),thesectorofborrowers,allowsustoidentifyeffectsacrosssectors,animportantfeatureasthebankandnon-banksectorscanhavenotablydifferenteconomicrelevance.Dimension(D),thelender’snationality,enablesustoidentifytheheadquarter,i.e.thehighest-levelbankingentityinthecorporatechain,ofthelendingbankingsystems.Thisallowsustoidentifythedecision-makingunit(FenderandMcGuire,2010;Cecchettietal.,2010;CommitteeontheGlobalFinancialSystem,2011)andtocontrolforthepossibleconfoundingeffectsoffinancialcenters.

Whilewedonotfocusontheroleoffiscalpolicies,westillcontrolforfiscaleffectsastheliteratureshowstheyareimportantdeterminantsofcross-borderbankflows(Pradhanetal.,2024).Oursamplesetofsourcebankingsystemsisdefinedbytheavailabilityofconsistentdatacoverageforfiscalstatistics.Weconcentrateonthe16advanced-economylendingbankingsystemsintheEurostatdatabaseandaddtheUnitedStates–therefore,ourhome(source)countriesencompassthetwolargestcurrencyareas,theUSDandtheEUR.Theincludedsetofsourcecountries(EuropeanUnioncountries;Nordiccountries;andtheUnitedStates)makeupover50percentoftotalcross-borderbankclaims(54percentofclaimsonbanksand56percentofclaimsonnon-banks).

5

Inourestimations,weexcludeclaimsthataredenominatedinthebankingsystem’sown

5Whileotherproprietarysourcescontainimputedquarterlyvaluesforasmallsetofadditionalcountries,theircalculationsrelyonassumptionsandsource-specificmethods;therefore,wechoosetofocussolelyon

currency(forinstance,weexcludeeuroareabanks’EURclaims,duetopolicyendogeneityconcerns).

Thecurrencycompositionofclaimsinoursampleiscloselycomparabletothecompositionobservedinthefullsetofcountries.AsGraph1.Cshows,amongthefivecurrenciesonwhichwefocusinoursample,theUSDandEURareclearlydominant,withsharesof49percentand28percent,respectivelyatend-2022(comparablerespectivesharesinthefulldataare51percentand36percent).Theotherthreecurrenciesinoursamplehavenotablylowershares:theGBP,JPY,andCHFmakeup12percent,8percent,and3percent,respectively,atend-2022(Graph1.C).

Intermsofborrowers’sectors,lendingtobanksandnon-banksmakeup55percentand45percentofclaimsinoursample,respectively,atend-2022(thesectorshaveaboutequalsharesinthefulldata).Since2012,theshareofclaimsonbankshasdeclinedandtheshareofclaimsonnon-bankshasincreasedinbothoursampleandthefulldata.Graphs1.Aand1.Bshowthecurrencybreakdownofclaimsbytargetsectorovertime.

Wedefinebilateralcross-borderlendingflows(themainoutcome/dependentvariableofinterest)asthequarterlypercentchangeinbilateralcross-borderbankclaimsfromasourcebankingsystemtoborrowersinagivencountry,denominatedinoneofthefivereservecurrencies.Importantly,weadjustflowsfortheeffectsofexchangeratechangesasfollows:beforewecalculatethequarterlypercentchangesinbilateralclaims,weconvertthe(reported)dollarvalueofclaimsbacktotheoriginalcurrencyamount,usingthecontemporaneousexchangeratebetweentheUSDandtheoriginalcurrencyoflending.

thesetofcountriesincludedintheEurostatcoverageandtheUnitedStates,toensuredataconsistency.Inadditionalregressions(availablebyrequest)werepeatourestimationsonthefullsampleandfindconsistentresults.

Thereissubstantialvariationinquarterly(exchangerate-adjusted)cross-borderlendingflows.Theaveragequarterlybilateralflow(inquarterlypercentagechange)is-0.13percentandhasastandarddeviationof55percent(Table1).Acrosscountries,theaverageflowsvaryovertimeaswell,rangingfrom-5percentto5percentattimes.

Changesinmonetarypolicy

Forpartofoursampleperiod,unconventional/balancesheet-focusedmonetarypolicyactionsbytheFederalReserve,theEuropeanCentralBank,theBankofJapan,theBankofEngland,andtheSwissNationalBankdrovepolicyratestozeroorintonegativeterritory.Therefore,tomeasuremonetarypolicychangesassociatedwiththesefivecurrencies,wecannotsimplyusechangesintheheadlinepolicyinterestrates.Giventhattheinteractionandtransmissionofmonetarypolicyeffectscanbeverydifferentduringunconventionalmonetarypolicyregimes(TakatsandTemesvary,2020)andfiscalpolicyregimes(Hofmannetal.,2021;Wang,2018),itisimportanttocaptureliquidityconditionsaccuratelyevenwhenthepolicyinterestrateisatthezerolowerbound.

Therefore,asisnowstandardintherelatedbankingliterature(Buchetal.2019,Temesvaryetal.,2018;Lhuissieretal.,2019,amongothers),weuseshadowinterestratestomeasurechangesinfinancialmarketliquidityconditionsrelatedtomonetarypolicyactionsduringperiodsofbindingeffectivelowerbounds.WeemployshadowratesconstructedbyKrippner(2024)whichareavailableconsistentlyacrossthefivemajorreservecurrenciesoverourfullsampleperiod.Inrobustnesschecks,weemploytheWu-Xiashadowrates(WuandXia,2016)asalternativemeasures;however,theseshadowratesareavailableforonlyasubsetofthecurrenciesthatweexamine.

Astheshort-termshadowratesarenotsubjecttothezerolowerbound(ZLB),theycancaptureexpansionarymonetarypolicyactionsbyturningnegative(Graph2).Byconstruction,theshadowratesarenearlyidenticaltothepolicyratesduringconventional(non-ZLB)periods,andnegativeintimesofbindingZLB.Allfiveshadowratesfellbelowzeroduringtheperiodwhenmonetaryconditionscontinuedtoease,andthenominalpolicyinterestrateshitthezerolowerbound.Duringoursampleperiod,theaverageshort-termshadowratewas-0.69percent;incontrast,theaveragecentralbankpolicyrateforthemajorreservecurrencieswas1.32percent.

Wemeasurechangesinthemonetarypolicystanceasquarterlychanges(fromonequartertothenext,inpercentagepoints)inthecurrency-specificshadowinterestrates.Acrosscurrencies,monetarypolicywascharacterizedbyaslightlycontractionarystanceinoursample(albeitamongbroadlyampleliquidityconditions),withaveragequarterlyincreasesof12basispoints,rangingfrom-1.8to2.6percentsinthesample(Table1).

Measuresofgeopoliticaltensionsandrisks

UNvotingdisagreement(IPD)

Tomeasurepoliticaldisagreement