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The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia

Author

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  • Martha López

    ()

  • Fernando Tenjo

    ()

  • Héctor Zárate

    ()

Abstract

The recent financial crisis has brought to the forefront the need for a better understanding of the transmission mechanisms of monetary policy. The main step forward on this issue has drawn on work aimed at stressing the role of the financial sector in this transmission. Particular emphasis has been placed on how policy actions impact risk perceptions and attitudes of banks and other financial institutions,leading to shifts in the supply of credit. Along these lines, and based on evidence from Colombia,this paper finds a significant link between low interest rates and banks´ risk-taking based on evidence from Colombia. Lower interest rates raise the probability of default on new loans, but reduce that on outstanding loans. Furthermore, this channel of policy transmission depends on some bank, loan and borrower characteristics, as well as on macroeconomic conditions, such as the growth rate of the economy.

Suggested Citation

  • 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, vol. 29(64), pages 211-234, July.
  • Handle: RePEc:col:000107:009446
    as

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    References listed on IDEAS

    as
    1. Yener Altunbas & Leonardo Gambacorta & David Marques-Ibanez, 2010. "Does monetary policy affect bank risk-taking?," BIS Working Papers 298, Bank for International Settlements.
    2. Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2010. "Bank risk and monetary policy," Journal of Financial Stability, Elsevier, vol. 6(3), pages 121-129, September.
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    Citations

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    Cited by:

    1. Wang, Li & Menkhoff, Lukas & Schröder, Michael & Xu, Xian, 2015. "Politicians' promotion incentives and bank risk exposure in China," Frankfurt School - Working Paper Series 216, Frankfurt School of Finance and Management.
    2. Gabriel Jiménez & Steven Ongena & José‐Luis Peydró & Jesús Saurina, 2014. "Hazardous Times for Monetary Policy: What Do Twenty‐Three Million Bank Loans Say About the Effects of Monetary Policy on Credit Risk‐Taking?," Econometrica, Econometric Society, vol. 82(2), pages 463-505, March.
    3. Claudio Borio, 2011. "Rediscovering the Macroeconomic Roots of Financial Stability Policy: Journey, Challenges, and a Way Forward," Annual Review of Financial Economics, Annual Reviews, vol. 3(1), pages 87-117, December.
    4. Ongena, Steven & Tümer-Alkan, Günseli & von Westernhagen, Natalja, 2015. "Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home?," Discussion Papers 09/2015, Deutsche Bundesbank.
    5. Leonardo Gambacorta, 2011. "The Risks of Low Interest Rates," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 29(64), pages 14-31, July.
    6. Martha López & Fernando Tenjo & Héctor Zárate, 2012. "The Risk-taking Channel in Colombia Revisited," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 30(68), pages 276-295, June.
    7. Martha López, 2017. "Economic Sectors and the Risk-taking Channel of Monetary Policy," Borradores de Economia 1029, Banco de la Republica de Colombia.
    8. Raslan Alzubi & Mustafa Caglayan & Kostas Mouratidis, 2017. "The Risk-Taking Channel in the US: A GVAR Approach," Working Papers 2017009, The University of Sheffield, Department of Economics.
    9. Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    10. Ekin Ayşe Özşuca & Elif Akbostancı, 2016. "An Empirical Analysis of the Risk-Taking Channel of Monetary Policy in Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(3), pages 589-609, March.
    11. repec:mes:emfitr:v:52:y:2016:i:3:p:589-609 is not listed on IDEAS

    More about this item

    Keywords

    monetary policy; lending standards; risk-taking; duration analysis; accelerated failure time models.;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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