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The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia


  • Martha López P.


  • Fernando Tenjo G.


  • Héctor Zárate Solano



The recent financial crisis has brought to the forefront the need of a better understanding of the transmission mechanisms of monetary policy. The main step forward in this direction has drawn on work aimed at stressing the role of the financial sector in this transmission. Particular emphasis has been place 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, the present 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 on macroeconomic conditions such as the rate of growth of the economy.

Suggested Citation

  • Martha López P. & Fernando Tenjo G. & Héctor Zárate Solano, 2010. "The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia," Borradores de Economia 616, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:616

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    References listed on IDEAS

    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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    Cited by:

    1. Wang, Li & Menkhoff, Lukas & Schröder, Michael & Xu, Xian, 2015. "Politicians' promotion incentives and bank risk exposure in China," ZEW Discussion Papers 15-026, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. Martha López, 2017. "Economic Sectors and the Risk-taking Channel of Monetary Policy," Borradores de Economia 1029, Banco de la Republica de Colombia.
    7. Vasso Ioannidou & Steven Ongena & José-Luis Peydró, 2015. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Review of Finance, European Finance Association, vol. 19(1), pages 95-144.
    8. 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.
    9. 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.
    10. 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.
    11. repec:mes:emfitr:v:52:y:2016:i:3:p:589-609 is not listed on IDEAS
    12. 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.

    More about this item


    Monetary policy; lending standards; risk taking; duration analysis; accelerated failure time models. Classification JEL: E44; G21; L14;

    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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