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BOK Working Paper No.2017-33, Bank Globalization and Monetary Policy Transmission in Small Open Economies

Author : Inhwan So
Economic Research Institute(+82-2-759-5993) 2017.11.19 4002

Title : Bank Globalization and Monetary Policy Transmission in Small Open Economies
Author : Inhwan So (BOK)

 

<Abstract>


This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.

 

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