Working Paper: CEPR ID: DP16860
Authors: Thorsten Beck; Simon Lloyd; Dennis Reinhardt; Rhiannon Sowerbutts
Abstract: We describe the macroprudential and monetary policy environment in the United Kingdom (UK). We highlight the UK’s position as an international financial centre, and the implications for inward and outward spillover effects of monetary and prudential policy actions. These spillovers pose particular opportunities and challenges for policymakers, and we explain how they have motivated specific developments to the Bank of England’s modelling framework. We also present novel empirical evidence that monetary policy actions in the UK have outward spillover effects through cross-border lending that can, in part, be mitigated by macroprudential actions in receiving countries.
Keywords: macroprudential policy; spillover effects; international financial centre; cross-border banking flows
JEL Codes: G21; G28; F34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tighter macroprudential policies in receiving countries (F65) | Mitigation of spillover effects of UK monetary policy (E49) |
| Tighter UK monetary policy (E49) | Negative spillover effects on cross-border lending (F65) |
| Loan-to-value (LTV) limits (G21) | Moderation of spillover effects of UK monetary policy (E49) |
| Surprise tightening of UK monetary policy (E52) | Significant reduction in external lending by UK-based banks (F65) |