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The bank lending channel of monetary transmission in Brazil: A VECM approach

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  • de Mello, Luiz
  • Pisu, Mauro

Abstract

This paper tests for the existence of a lending channel in the transmission of monetary policy in Brazil using aggregate monthly data for the period 1995:12 through 2008:6. The test is carried out in a VECM setting that allows for multiple cointegrating relationships among the variable of interest. We find evidence of two cointegrating vectors, which we identify as loan demand and supply functions by testing for a number of exclusion and exogeneity restrictions on the cointegrating relationships. Loan supply is found to be negatively related to the interbank deposit certificate rate, suggesting the existence of a lending channel for monetary transmission. The VECM's short-term dynamics show that loan demand is equilibrium-correcting. But short-term disequilibria in the supply of loans are corrected through changes in the interbank deposit certificate rate, suggesting that monetary policy plays a role in restoring equilibrium in the credit market by affecting the borrowing rate faced by banks to raise non-deposit funds.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 50 (2010)
Issue (Month): 1 (February)
Pages: 50-60

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Handle: RePEc:eee:quaeco:v:50:y:2010:i:1:p:50-60

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Web page: http://www.elsevier.com/locate/inca/620167

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Keywords: Vector error-correction model Bank lending channel Monetary transmission mechanism;

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Citations

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Cited by:
  1. Leonardo S. Alencar, 2011. "Revisiting Bank Pricing Policies in Brazil: evidence from loan and deposit markets," Working Papers Series 235, Central Bank of Brazil, Research Department.
  2. Carrera, César, 2011. "El canal del crédito bancario en el Perú: Evidencia y mecanismo de transmisión," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 22, pages 63-82.
  3. Deryugina, Elena B. & Ponomarenko, Alexey A., 2011. "Identifying structural shocks behind loan supply fluctuations in Russia," BOFIT Discussion Papers 20/2011, Bank of Finland, Institute for Economies in Transition.

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