Work in progress
Work in progress
Monetary Policy and Lending by Non-Deposit-Taking Institutions and Banks: Evidence from Mexican Credit Registry Data
I investigate how monetary policy affects lending by non-deposit-taking lenders (NDTLs), which, unlike traditional banks, rely on funding from private investors, development and commercial banks, and the securities market. Using loan-level data from the Mexican credit registry, I find that NDTLs contract lending less than banks when policy tightens. A one-standard-deviation monetary policy shock (0.06 percentage points) is associated with a 3.7% higher lending volume within narrowly defined markets and an 8.9% larger average loan size for NDTLs relative to banks, with no significant differences in interest rates or maturities. Evidence based on differences in funding structures suggests that reliance on short-term funding from development banks and other institutions, besides commercial banks, amplifies the sensitivity of NDTLs to monetary policy shocks, while, for banks, greater reliance on deposits is associated with stronger loan contractions.
How do Retail Investors Adapt to Exchange Rate Shocks?
with Martin Brown, Daniel Hoechle, and Markus Schmid
Abstract: We study the impact of monetary policy on household finance in open economies. We examine the response of retail investors to a policy shock which led to (i) a sharp appreciation of the domestic currency, (ii) a significant increase in exchange rate volatility, and (iii) the introduction of a negative policy rate. Our analysis is based on monthly, account-level data covering bank deposits, securities holdings and trades for a large sample of affluent bank clients. The policy shock leads to a shift of assets away from fixed income securities towards domestic currency bank deposits and foreign currency risky securities. Wealthier clients display a stronger portfolio shift towards risky securities in foreign currency as they search for yield. Investor attention, as measured by trading activity and contacts with bank advisors, increases temporarily after the shock.
Wealth Channel: Effect of the 2015 Swiss Franc Shock on Household Wealth and Consumption
with Martin Brown, Daniel Hoechle, and Markus Schmid
Abstract: This paper studies the transmission of monetary policy shocks to household consumption through wealth effects in a small open economy. As a natural experiment, we exploit the 2015 "Swiss franc shock", triggered by the Swiss National Bank’s unexpected removal of the euro exchange rate floor. Using granular administrative data from a retail bank we document substantial consumption responses by households with portfolio exposures to the policy shock. We reveal that a 1% valuation loss on financial assets is associated with a 0.7% reduction in total spending in the quarter following the shock, relative to the previous year. The effect is driven by large-ticket spending rather than out-of-pocket spending and is heterogeneous across households with varying valuation losses and wealth-levels. Our results provide direct evidence of the wealth channel of monetary policy and underscore the role of exchange-rate-induced asset revaluations in shaping consumption dynamics in open economies.