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Identifying the Bank Lending Channel in Brazil through Data Frequency

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  • Joao Manoel Pinho de Mello

    ()

  • Marcio Garcia

    ()

  • Christiano Arrigoni

    ()

Abstract

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.

Suggested Citation

  • Joao Manoel Pinho de Mello & Marcio Garcia & Christiano Arrigoni, 2010. "Identifying the Bank Lending Channel in Brazil through Data Frequency," ECONOMIA JOURNAL, THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION - LACEA, vol. 0(Spring 20), pages 47-79, January.
  • Handle: RePEc:col:000425:008579
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    References listed on IDEAS

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    1. Takeda, Tony & Rocha, Fabiana & Nakane, Márcio I., 2005. "The Reaction of Bank Lending to Monetary Policy in Brazil," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 59(1), January.
    2. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
    3. 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.
    4. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
    5. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    6. 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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    Citations

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    Cited by:

    1. Ramos-Tallada, Julio, 2015. "Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 135-161.
    2. De Mello, João Manoel P. & Garcia, Márcio G.P., 2012. "Bye, bye financial repression, hello financial deepening: The anatomy of a financial boom," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 135-153.
    3. Marco Bonomo and Bruno Martins, 2016. "The Impact of Government-Driven Loans in the Monetary Transmission Mechanism: what can we learn from firm-level data?," Working Papers Series 419, Central Bank of Brazil, Research Department.
    4. Montes, Gabriel Caldas, 2013. "Credibility and monetary transmission channels under inflation targeting: An econometric analysis from a developing country," Economic Modelling, Elsevier, vol. 30(C), pages 670-684.
    5. Leonardo S. Alencar, 2012. "Revisiting Bank Pricing Policies in Brazil: Evidence from Loan and Deposit Markets," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(67), pages 35-71, December.
    6. Kapounek, Svatopluk & Kučerová, Zuzana & Fidrmuc, Jarko, 2017. "Lending conditions in EU: The role of credit demand and supply," Economic Modelling, Elsevier, vol. 67(C), pages 285-293.
    7. Mercedes Garcia-Escribano, 2013. "Monetary Transmission in Brazil; Has the Credit Channel Changed?," IMF Working Papers 13/251, International Monetary Fund.
    8. Gabriel Caldas Montes & Gabriel Gonçalves do Vale Monteiro, 2014. "Monetary policy, prudential regulation and investment: Evidence from Brazil considering the bank lending channel," Journal of Economic Studies, Emerald Group Publishing, vol. 41(6), pages 881-906, November.
    9. Montes, Gabriel Caldas & Peixoto, Gabriel Barros Tavares, 2014. "Risk-taking channel, bank lending channel and the “paradox of credibility”," Economic Modelling, Elsevier, vol. 39(C), pages 82-94.
    10. Gabriel Caldas Montes & Caroline Cabral Machado, 2013. "Credibility and the credit channel transmission of monetary policy theoretical model and econometric analysis for Brazil," Journal of Economic Studies, Emerald Group Publishing, vol. 40(4), pages 469-492, August.

    More about this item

    Keywords

    monetary policy transmission; credit markets;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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