3  This balance sheet effect has been pioneered as part of the “credit channel” of monetary policy transmission by Bernanke and Gertler (1995). See Gertler, Gilchrist and Natalucci (2007) for an open-economy extension emphasizing private-sector foreign-currency debt. 2  BIS central bankers’ speeches  classic “original sin” 4 in international macroeconomics, which can affect both public and private borrowers.
The literature highlights a number of financial market imperfections that give rise to excessive volatility and contagion in asset prices and capital flows, magnifying the spillovers from monetary policy. 5 It is this multitude of transmission channels, some of them going in opposite directions, which calls for a cautious judgement of the sign and magnitude of the spillovers from monetary policy.