Discussion Paper Details

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Title: The Real Effects of Exchange Rate Depreciation: The Role of Bank Loan Supply

Author(s): Thorsten Beck, Peter Bednarek, Daniel Marcel Te Kaat and Natalja Von Westernhagen

Publication Date: April 2022

Keyword(s): bank lending, Exchange Rates, Germany, Interbank Markets, Real effects and Regional business cycles

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Beck, T, Bednarek, P, Te Kaat, D and Von Westernhagen, N. 2022. 'The Real Effects of Exchange Rate Depreciation: The Role of Bank Loan Supply'. London, Centre for Economic Policy Research.