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Monetary policy and bank lending rates in low-income countries: Heterogeneous panel estimates

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  • Mishra, Prachi
  • Montiel, Peter
  • Pedroni, Peter
  • Spilimbergo, Antonio

Abstract

This paper studies the transmission of monetary shocks to lending rates in a large sample of advanced, emerging, and low-income countries. Transmission is measured by the impulse response of bank lending rates to monetary policy shocks. Long-run restrictions are used to identify such shocks. Using a heterogeneous structural panel VAR approach, we find that there is wide variation in the response of bank lending rates to a monetary policy innovation across countries. Monetary policy shocks are more likely to affect bank lending rates in the theoretically expected direction in countries that have better institutional frameworks, more developed financial structures, and less concentrated banking systems. Low-income countries score poorly along all of these dimensions, and we find that such countries indeed exhibit much weaker transmission of monetary policy shocks to bank lending rates than do advanced and emerging economies.

Suggested Citation

  • Mishra, Prachi & Montiel, Peter & Pedroni, Peter & Spilimbergo, Antonio, 2014. "Monetary policy and bank lending rates in low-income countries: Heterogeneous panel estimates," Journal of Development Economics, Elsevier, vol. 111(C), pages 117-131.
  • Handle: RePEc:eee:deveco:v:111:y:2014:i:c:p:117-131
    DOI: 10.1016/j.jdeveco.2014.08.005
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    References listed on IDEAS

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    Cited by:

    1. Concha Verdugo Yepes & Peter L. Pedroni & Xingwei Hu, 2015. "Crime and the Economy in Mexican States; Heterogeneous Panel Estimates (1993-2012)," IMF Working Papers 15/121, International Monetary Fund.
    2. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    3. Bin Grace Li & Stephen A. O'Connell & Christopher S Adam & Andrew Berg & Peter J Montiel, 2016. "VAR meets DSGE; Uncovering the Monetary Transmission Mechanism in Low-Income Countries," IMF Working Papers 16/90, International Monetary Fund.
    4. repec:bla:agecon:v:48:y:2017:i:5:p:629-638 is not listed on IDEAS
    5. Charles Abuka & Ronnie K Alinda & Camelia Minoiu & José-Luis Peydró & Andrea F Presbitero, 2015. "Monetary Policy in a Developing Country; Loan Applications and Real Effects," IMF Working Papers 15/270, International Monetary Fund.
    6. repec:ilo:ilowps:488115 is not listed on IDEAS
    7. Sonali Das, 2015. "Monetary Policy in India; Transmission to Bank Interest Rates," IMF Working Papers 15/129, International Monetary Fund.
    8. Montiel, Peter J., 2015. "Monetary transmission in low-income countries : an overview," ILO Working Papers 994881153402676, International Labour Organization.
    9. repec:eee:ecmode:v:80:y:2019:i:c:p:142-157 is not listed on IDEAS
    10. Na Hao & Peter Pedroni & Gregory Colson & Michael Wetzstein, 2017. "The linkage between the U.S. ethanol market and developing countries’ maize prices: a panel SVAR analysis," Agricultural Economics, International Association of Agricultural Economists, vol. 48(5), pages 629-638, September.
    11. repec:eee:deveco:v:139:y:2019:i:c:p:185-202 is not listed on IDEAS
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    16. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications, The World Bank, number 25823, September.
    17. Francesco Grigoli & Evelio Paredes & Gabriel Di Bella, 2016. "Inequality and Growth; A Heterogeneous Approach," IMF Working Papers 16/244, International Monetary Fund.
    18. Bhattacharya. Rudrani, 2017. "Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies," Working Papers 17/209, National Institute of Public Finance and Policy.
    19. harraou, Khalid, 2019. "Analyse du pass-through du taux d’intérêt au Maroc
      [Analysis of the interest rate in Morocco]
      ," MPRA Paper 94968, University Library of Munich, Germany.
    20. Shaig Adigozalov & Vugar Rahimov, 2015. "Institutional Quality, Cyclicality of Macroeconomic Policies and the Effects of Macroeconomic Shocks: Evidence from Transition Economies," IHEID Working Papers 23-2015, Economics Section, The Graduate Institute of International Studies.
    21. Abuka, Charles & Alinda, Ronnie & Minoiu, Camelia & Peydr�, Jos� Luis & Presbitero, Andrea, 2017. "Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects," CEPR Discussion Papers 12171, C.E.P.R. Discussion Papers.
    22. Barajas, Adolfo & Chami, Ralph & Ebeke, Christian & Oeking, Anne, 2018. "What's different about monetary policy transmission in remittance-dependent countries?," Journal of Development Economics, Elsevier, vol. 134(C), pages 272-288.
    23. Muqtada, Muhammed., 2015. "Challenges of price stability, growth and employment in Bangladesh : role of the Bangladesh Bank," ILO Working Papers 994873053402676, International Labour Organization.
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    More about this item

    Keywords

    Monetary policy; Bank lending; Structural panel VAR;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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