Commodity Price Shocks and Credit Supply in Resource-Dependent Economies

Abstract

This model estimates the elasticity of bank lending to changes in commodity pricesin resource-dependent countries. Using foreign subsidiaries of multinational bankholding companies as a natural experiment, I find little evidence of a relationshipbetween commodity price shocks and credit supply in resource-dependenteconomies between 1991 and 2015, despite the apparent relationship betweenmacroeconomic conditions in the home country and the willingness of foreignsubsidiaries to lend. A local projection indicates GDP growth, historical lendinggrowth, deposit growth, and exchange rate changes play more substantive rolesin explaining the evolution of credit over time. These results imply that whiletheir balance sheets are exposed to home country conditions in general, foreignsubsidiaries are insulated from resource shocks.