The international bank lending channel of monetary policy rates and quantitative easing: credit supply, reach-for-yield, and real effects

We identify the international credit channel by exploiting Mexican supervisory data sets and foreign monetary policy shocks in a country with a large presence of European and U.S. banks. A softening of foreign monetary policy expands credit supply of foreign banks (e.g., U.K. policy affects credit supply in Mexico via U.K. banks), inducing strong firm‐level real effects. Results support an international risk‐taking channel and spillovers of core countries’ monetary policies to emerging markets, both in the foreign monetary softening part (with higher credit and liquidity risk‐taking by foreign banks) and in the tightening part (with negative local firm‐level real effects).Peydró acknowledges financial support from the Spanish Ministry of Economics and Competitiveness through both Feder EU (project ECO2015-68182-P) and the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563), and also the European Research Council Grant (project 648398)