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Is the financial accelerator story, empirically relevant for the determinants of the interest rate spread?

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  • Catalán-Herrera, Juan
  • Arriaza, Juan Carlos
  • Alvarado, Ricardo

Abstract

One implication of financial accelerator model, is that leverage of firms should be an important determinant of the interest rate spreads. In this paper we search for empirical evidence of the operation of such accelerator, using a detailed bank supervisory data set from the Guatemalan banking system. Using a Panel-VAR approach, and controlling for the usual determinants of interest rate spreads, we explore if the riskiness of firms and banks can still convey some explanatory power over the interest rate spread, as the financial accelerator hypothesis would suggest. From the ‘loan applicant perspective’, we evaluate the extent to which leverage ratios of firms can explain the spreads between the policy rate and four loan categories. Additionally, we explore the operation of the financial accelerator from the ‘loan granter perspective’, evaluating how much of the spread between different passive interest rates and the policy rate can be explained by a measure of the leverage of banks. Results show the existence of a financial accelerator mechanism operating in the Guatemalan banking system, from the loan applicant perspective. From the loan granter perspective, evidence seems weak, but sensible.

Suggested Citation

  • Catalán-Herrera, Juan & Arriaza, Juan Carlos & Alvarado, Ricardo, 2019. "Is the financial accelerator story, empirically relevant for the determinants of the interest rate spread?," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 37-47.
    • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:37-47
    DOI: 10.1016/j.qref.2018.10.003
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    1. de Moraes, Claudio & Galvis-Ciro, Juan Camilo & Gargalhone, Micheli, 2021. "Financial access and interest rate spread: An international assessment," Journal of Economics and Business, Elsevier, vol. 114(C).

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    More about this item

    Keywords

    Interest rate spreads; Financial accelerator model; Business fluctuations;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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