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The Risk-taking Channel in Colombia Revisited

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  • Martha López

    ()

  • Fernando Tenjo

    ()

  • Héctor Zárate

    ()

Abstract

Levels of interest rates below historical norms may have enhanced financial instability in both developed and in developing economies during the 2000´s. The risk-taking channel of monetary transmission policy is a recent theory that explains theinteraction between risk perceptions of the financial system and monetary policy. This paper presents empirical evidence of the risk-taking channel of monetary policy using detailed information on consumer and commercial loans from the Colombianbanking system. Using probit and duration models, we find that the banking system takes on more risk when the level of interest rates are too low. We also find that the response to interest rates is higher in the case of commercial loans.

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Article provided by BANCO DE LA REPÚBLICA - ESPE in its journal ENSAYOS SOBRE POLÍTICA ECONÓMICA.

Volume (Year): (2012)
Issue (Month): ()
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Handle: RePEc:col:000107:010344

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Keywords: Monetary policy; lending standards; risk taking; duration analysis; probit models;

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References

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  1. Piti Disyatat, 2010. "The bank lending channel revisited," BIS Working Papers 297, Bank for International Settlements.
  2. Martha López & Fernando Tenjo & Héctor Zárate, 2011. "The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.
  3. Ioannidou, V. & Ongena, S. & Peydro, J.L., 2009. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Discussion Paper 2009-31 S, Tilburg University, Center for Economic Research.
  4. Douglas W. Diamond & Raghuram G. Rajan, 2006. "Money in a Theory of Banking," American Economic Review, American Economic Association, vol. 96(1), pages 30-53, March.
  5. Eliana González & Luis F. Melo & Luis E. Rojas & Brayan Rojas, 2010. "Estimations of the natural rate of interest in Colombia," BORRADORES DE ECONOMIA 007667, BANCO DE LA REPÚBLICA.
  6. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
  7. Gabriel Jiménez & Steven Ongena & José Luis Peydró & Jesús Saurina, 2009. "Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking?," Banco de Espa�a Working Papers 0833, Banco de Espa�a.
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Cited by:
  1. Martha López & Fernando Tenjo Galarza & Hector Zárate, 2013. "Credit Cycles, Credit Risk and Countercyclical Loan Provisions," BORRADORES DE ECONOMIA 011092, BANCO DE LA REPÚBLICA.
  2. repec:col:000094:010860 is not listed on IDEAS
  3. Ruth Reyes Nidia & José Eduardo Gómez G. & Jair Ojeda Joya, 2013. "Bank Lending, Risk Taking, and the Transmission of Monetary Policy: New Evidence for Colombia," Borradores de Economia 772, Banco de la Republica de Colombia.

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