This paper develops a two-country production network model to examine the transmission of external supply shocks and their impact on input-output dynamics. We find that external supply shocks at the upstream and downstream stages significantly differ impacts on the dynamics of input-output and these effects vary with firms’ network position, dependence on foreign industries, vertical integration, and financial constraints. We explore optimal monetary-fiscal policy coordination and find that upstream shocks require fiscal subsidies and lower interest rates to ease production costs, while downstream shocks call for higher interest rates to attract foreign investment and liquidity support to sustain firms’ financing.
Keywords: Production Network; Monetary Policy; Fiscal Policy; Policy Coordination
We investigate the unintended interaction effect of monetary and macroprudential policies on banks' broad credit, using Chinese bank-level data from 2005 to 2019. According to our findings, tightening both macroprudential and monetary policies simultaneously in China expands broad credit, which differs from traditional empirical findings in other countries that such policy conditions typically result in credit contraction. We reveal that the non-deposit funding channel drives the unintended surge in broad credit under the interaction of macroprudential and monetary policy.
Keywords: Macroprudential Policy, Monetary Policy, Non-deposit Funding, Bank Broad Credit
We conduct a comprehensive analysis using data from 9,724 commercial banks across 97 countries from 2002 to 2022 to investigate the impact of banks' non-deposit liabilities on their risk-taking. Our findings reveal that an increase in the proportion of non-deposit liabilities triggers amplified bank risk-taking. Heterogeneity analysis indicates that the positive impact of non-deposit liabilities on bank risk-taking is more pronounced in banks with high reserves and high core tier 1 ratios. During periods of expansionary monetary policy, banks exhibit greater risk-taking in response to increased non-deposit liabilities. Moreover, we ascertain that the expansion in non-deposit liabilities can erode bank profitability by boosting risk-taking.
Keywords: Non-deposit Liabilities, Bank Risk-taking, Bank Profitability