https://macropaperwarehouse.com/authors/daniel-te-kaat/Daniel Te KaatHugo -- gohugo.ioen-usWed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/real-effects-of-exchange-rate-depreciation-the-roles-of-bank-loan-supply-and-interbank-markets/Wed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/real-effects-of-exchange-rate-depreciation-the-roles-of-bank-loan-supply-and-interbank-markets/<p>Research question and motivation. The paper asks how exchange rate movements affect the real economy and what role the banking system&rsquo;s foreign-asset exposure plays in transmitting exchange rate shocks. The motivation is concrete: with the Federal Reserve’s “tapering” of quantitative easing, the euro lost slightly more than 20% against the US dollar between 2014:Q2 and 2015:Q1, a sharp, persistent and largely unanticipated move. Standard open-economy models predict depreciations raise output via the trade balance, but recent work questions this classical trade channel and emphasizes firm/bank balance-sheet channels. The paper complements this by examining how a depreciation reshapes the composition of bank credit and, ultimately, regional output—working through banks’ net foreign asset (NFA) exposure rather than trade.</p>