Research Technical Paper: Cross-border spillovers of monetary policy – what changes during a financial crisis?

08 October 2018 Press Release

Central Bank of Ireland

A Research Technical Paper by Mary Everett (co-authored with Luciana Barbosa, Diana Bonfim and Sónia Costa, all Banco de Portugal) addresses the question of whether a banking system in distress reacts more or less to monetary policy changes in other major economies. The paper compares and contrasts the international spillovers of monetary policy from the US and UK to both Ireland and Portugal before and during the euro area sovereign debt crisis.

The key findings of the research are:

  • The funding structure of banks played a role in the transmission of monetary policy for both economies prior to the euro area sovereign debt crisis. Furthermore, liquid assets play a mitigating role in offsetting a funding shock driven by changes in foreign monetary policy.
  • During the sovereign debt crisis period, there is a lack of evidence on the cross-border transmission of monetary policy – when banks lose access to external funding and become dependent on central bank borrowing, foreign monetary policy stops playing a role.
  • For small economies that are members of a common currency, not only does their domestic monetary policy stance matter, but so too does that of major currencies, therefore warranting surveillance by policy makers in these small open economies.


The views presented in Research Technical Papers are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.

Library of Research Technical Papers