Working Paper: CEPR ID: DP17231
Authors: Thorsten Beck; Peter Bednarek; Daniel Marcel te Kaat; Natalja von Westernhagen
Abstract: Using matched bank-firm-level data and the 2014 depreciation of the euro, we show that exchange rate depreciations can lead to higher loan supply. Large banks with high net dollar exposure increase lending to export-intensive firms and—through interbank markets—to small banks without foreign-currency asset exposure but with a high share of exporting firms in their portfolio. We also find that German regions with such small banks experience higher output growth following the depreciation. These findings show the importance of banks’ balance sheet structure and interbank markets in transmitting exchange rate shocks to the real economy.
Keywords: exchange rates; bank lending; interbank markets; real effects; regional business cycles; Germany
JEL Codes: E44; E52; G21; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in loan supply from large banks (G21) | increased lending to export-intensive firms (F65) |
| increase in loan supply from large banks (G21) | increase in interbank lending to small banks (G21) |
| increase in interbank lending to small banks (G21) | higher GDP growth in affected regions (F69) |
| euro depreciation (F31) | increase in loan supply from large banks (G21) |
| euro depreciation (F31) | higher GDP growth in affected regions (F69) |