The Role of US Monetary Policy in Banking Crises Across the World

Abstract

We examine the role of US monetary policy in banking crises across the world by using a cross-country database spanning 69 countries over the 1870–2010 period. US monetary policy tightening increases the probability of a banking crisis for those countries with direct linkages to the USA, either in the form of trade links or significant share of USD-denominated liabilities. Conversely, if a country is integrated globally, rather than having a direct exposure, the effect is ambiguous. These findings suggest that the effect of US monetary policy in global banking crises is not uniform and is largely dependent on the nature of linkages with the USA.