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The international transmission of monetary policy through financial centres: Evidence from the United Kingdom and Hong Kong

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  • Hills, Robert
  • Ho, Kelvin
  • Reinhardt, Dennis
  • Sowerbutts, Rhiannon
  • Wong, Eric
  • Wu, Gabriel

Abstract

This paper explores the cross-border transmission of monetary policy by comparing and contrasting the results for two major international financial centres: Hong Kong and the United Kingdom. We examine the effect of monetary policy in the USA, euro area and Japan, on banks’ domestic lending behaviour. Using individual bank-level data we find that financial connections – in the form of lending to and borrowing from the country which changes monetary policy - play an important role in the transmission of foreign monetary policy. We are able to establish evidence for both a bank funding and bank portfolio channel of monetary policy, for both Hong Kong and the UK. These results contrast to the largely inconclusive results from previous studies, whose aggregate nature may have masked offsetting individual bank effects.

Suggested Citation

  • Hills, Robert & Ho, Kelvin & Reinhardt, Dennis & Sowerbutts, Rhiannon & Wong, Eric & Wu, Gabriel, 2019. "The international transmission of monetary policy through financial centres: Evidence from the United Kingdom and Hong Kong," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 76-98.
    • Handle: RePEc:eee:jimfin:v:90:y:2019:i:c:p:76-98
    DOI: 10.1016/j.jimonfin.2018.08.007
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    Cited by:

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    2. Cao, Jin & Dinger, Valeriya & Gómez, Tomás & Gric, Zuzana & Hodula, Martin & Jara, Alejandro & Juelsrud, Ragnar & Liaudinskas, Karolis & Malovaná, Simona & Terajima, Yaz, 2023. "Monetary policy spillover to small open economies: Is the transmission different under low interest rates?," Journal of Financial Stability, Elsevier, vol. 65(C).
    3. Keefe, Helena Glebocki, 2021. "The transmission of global monetary and credit shocks on exchange market pressure in emerging markets and developing economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    4. Irawan, Denny & Okimoto, Tatsuyoshi, 2022. "Conditional capital surplus and shortfall across renewable and non-renewable resource firms," Energy Economics, Elsevier, vol. 112(C).
    5. Andreeva, Desislava & Coman, Andra & Everett, Mary & Froemel, Maren & Ho, Kelvin & Lloyd, Simon & Meunier, Baptiste & Pedrono, Justine & Reinhardt, Dennis & Wong, Andrew & Wong, Eric & Żochowski, Dawi, 2023. "Negative rates, monetary policy transmission and cross-border lending via international financial centres," Working Paper Series 2775, European Central Bank.
    6. Buch, Claudia M. & Bussierè, Matthieu & Goldberg, Linda & Hills, Robert, 2019. "The international transmission of monetary policy," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 29-48.
    7. Matthieu Bussière & Robert Hills & Simon Lloyd & Baptiste Meunier & Justine Pedrono & Dennis Reinhardt & Rhiannon Sowerbutts, 2021. "Le Pont de Londres: Interactions between monetary and prudential policies in cross‐border lending," Review of International Economics, Wiley Blackwell, vol. 29(1), pages 61-86, February.
    8. Gajewski, Krzysztof & Jara, Alejandro & Kang, Yujin & Mok, Junghwan & Moreno, David & Serwa, Dobromił, 2019. "International spillovers of monetary policy: Lessons from Chile, Korea, and Poland," Journal of International Money and Finance, Elsevier, vol. 90(C), pages 175-186.
    9. Agénor, Pierre-Richard & Jackson, Timothy P. & Pereira da Silva, Luiz A., 2024. "Cross-border regulatory spillovers and macroprudential policy coordination," Journal of Monetary Economics, Elsevier, vol. 146(C).
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    11. Lartey, Theophilus & James, Gregory A. & Danso, Albert & Boateng, Agyenim, 2023. "Interbank market structure, bank conduct, and performance: Evidence from the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 1-25.
    12. Correa, Ricardo & Sapriza, Horacio & Zlate, Andrei, 2021. "Wholesale funding runs, global banks' supply of liquidity insurance, and corporate investment," Journal of International Economics, Elsevier, vol. 133(C).

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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