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Identifying the Bank Lending Channel in Brazil through Data Frequency

  • Joao Manoel Pinho de Mello

    ()

  • Marcio Garcia

    ()

  • Christiano Arrigoni

    ()

We study how monetary policy affects bank lending behavior with an unique database and an event-study approach. Using the daily frequencies of interest rates and new loans in our data as a source of identification, we estimate banks´ reactions to monetary policy committee (Copom) decisions and to announcements of reserve requirement changes. We argue that these estimated reduced-form coefficients can be interpreted as supply shifts. The behavior of the estimates corroborates the claim that we capture supply movements, since new loans depends negatively on unexpected basic interest rate and reserve requirements changes, and the opposite is true for the lending interest rate. Evidence suggests that banking lending channel is unimportant. Results are robust to using different bank characteristics to define financial constraint, to the monetary policy instrument - basic interest rates or reserve requirement -, and to the measure of monetary policy stance.

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Article provided by ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION in its journal ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.

Volume (Year): Volume 10 Number 2 (2010)
Issue (Month): Spring 2010 (January)
Pages: 47-79

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Handle: RePEc:col:000425:008579
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  1. Francisco F. Vazquez & Carmen Reinhart & Marco Arena, 2007. "The Lending Channel in Emerging Economies; Are Foreign Banks Different?," IMF Working Papers 07/48, International Monetary Fund.
  2. Takeda, Tony & Rocha, Fabiana & Nakane, Márcio I., 2005. "The Reaction of Bank Lending to Monetary Policy in Brazil," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 59(1), January.
  3. Tony Takeda & Fabiana Rocha & Márcio Nakane, 2003. "The Reaction of Bank Lending to Monetary Policy in Brazil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] b30, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  4. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
  5. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May.
  6. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
  7. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
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