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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 developed and developing economies during the 2000's. The risk taking channel of monetary policy transmission is a recent theory that explains the interaction 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 Colombian banking 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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Bibliographic Info

Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 009313.

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Length: 57
Date of creation: 07 Feb 2012
Date of revision:
Handle: RePEc:col:000094:009313

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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. Douglas W. Diamond & Raghuram G. Rajan, 2003. "Money in a Theory of Banking," NBER Working Papers 10070, National Bureau of Economic Research, Inc.
  2. Eliana González & Luis F. Melo & Luis E. Rojas & Brayan Rojas, . "Estimations of the natural rate of interest in Colombia," Borradores de Economia 626, Banco de la Republica de Colombia.
  3. Martha López P. & Fernando Tenjo G. & Héctor Zárate Solano, . "The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia," Borradores de Economia 616, Banco de la Republica de Colombia.
  4. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, December.
  5. 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.
  6. Piti Disyatat, 2010. "The bank lending channel revisited," BIS Working Papers 297, Bank for International Settlements.
  7. Ioannidou, V. & Ongena, S. & Peydro, J.L., 2009. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Discussion Paper, Tilburg University, Center for Economic Research 2009-31 S, Tilburg University, Center for Economic Research.
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Cited by:
  1. 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.
  2. repec:col:000094:010860 is not listed on IDEAS
  3. Martha López & Fernando TenjO & Héctor Zárate, 2013. "Credit Cycles, Credit Risk and Countercyclical Loan Provisions," Borradores de Economia 788, Banco de la Republica de Colombia.

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