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Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data

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  • Ramos-Tallada, Julio

Abstract

Using a large database of bank financial statements, this paper investigates the determinants of the bank lending channel (BLC) of monetary transmission in Brazil between 1995 and 2012. I extend the standard empirical approach in two main ways. First, I apply a micro-founded strategy for disentangling demand from supply shifts in credit. Using this identification scheme, I show that lending supply is negatively correlated with the short-term market interest rate over the long period. The sensitivity of credit supply to monetary shocks is not related to the bank characteristics generally used in the empirical literature, whereas a proxy of the individual bank external finance premium (EFP) tends to capture financial constraints better than size, liquid assets or capitalization ratios. However, the patterns of the BLC have changed since the onset of the global financial crisis. In the post-crisis period, the money market rate does not affect the lending supply of the average bank anymore, while small banks and those lacking access to long-term funds appear more sensitive to monetary shocks in some estimations. Second, I check whether several types of uncertainty may drive the BLC, beyond liquidity risk. Over the long period, I find evidence that higher market risk borne by banks' securities portfolios (captured by a longer duration of public debt bonds) and lower uncertainty in the money market (captured by a lower volatility of rates) appear to consistently enhance the effectiveness of monetary policy through the BLC.

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  • 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.
  • Handle: RePEc:eee:jimfin:v:55:y:2015:i:c:p:135-161
    DOI: 10.1016/j.jimonfin.2015.02.014
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    Cited by:

    1. 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.
    2. repec:nea:journl:y:2018:i:37:p:112-144 is not listed on IDEAS
    3. repec:eee:ecofin:v:43:y:2018:i:c:p:141-157 is not listed on IDEAS
    4. Njindan Iyke, Bernard, 2016. "Are Monetary Policy Disturbances Important in Ghana? Some Evidence from Agnostic Identification," MPRA Paper 70205, University Library of Munich, Germany.
    5. Fernando da Silva Vinhado & José Angelo Divino, 2015. "Monetary and Macroprudential Policies: Empirical Evidences from Panel-VAR," Brazilian Review of Finance, Brazilian Society of Finance, vol. 13(4), pages 691-731.
    6. Helder Ferreira de Mendonça & Vitor R. C. Britto, 2017. "Interest rate and credit channel for households and firms: Evidence from a large emerging economy," Economics Bulletin, AccessEcon, vol. 37(1), pages 586-604.
    7. Jose E. Gomez-Gonzalez & Ali M. Kutan & Jair N. Ojeda-Joya & María Camila Ortiz, 2016. "The Bank Lending Channel of Monetary Policy: Does the Financial Structure of Banks Matter," Borradores de Economia 953, Banco de la Republica de Colombia.

    More about this item

    Keywords

    Risks; Monetary policy transmission; Bank lending channel; Identification of supply shifts; Panel data; Brazil;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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