This work presents a semi parametric approach to evaluate the role of the Central Bank reserve requirements, both remunerated and non-remunerated, over the bank interest rate distribution in Brazil between September/2000 and March/2004. We adopted the semi parametric approach developed by DiNardo, Fortin and Lemieux (1996), originally constructed to get the effects of minimum wage in wage inequality. We consider two more explanatory factors: i) the default rate; ii) other individual characteristics, like bank size and bank liquidity. We used the kernel method with a careful reweight choice to estimate the counterfactual bank interest rate density associated with each one of the explanatory factors. This procedure allows us to compare the relative weight each factor has on the density of interest rates and yields a visually clear representation of precisely where in the distribution the various factors have greatest impact. We used data from Cosif and from information reported by banks to the Central Bank and we restricted the estimation for two categories of bank loans: Working Capital and Personal Overdrafts. The results show negligible effects of the variation of the default rate and important effects of reserve requirement rates on banking loan rates.
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Length: Date of creation: 2004 Date of revision: Handle: RePEc:anp:en2004:095
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Find related papers by JEL classification: C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates