Macroeconomic Fluctuations and Bank Behavior in Chile
The purpose of this study is to analyze bank behavior in Chile over time, exploring how their balance sheets and performance move in both the short and the long run, and their reaction to macroeconomic shocks. The evolution of banking aggregates over an 18-year period (1989- 2006), using quarterly data is examined. Techniques common in the real business cycle literature are applied to establish empirical patterns. Robustness tests using several filters are performed. The effects of macro shocks on banking variables are analyzed, both by means of an event study, and by estimating impulse responses with VARs. The results show that credit lags the cycle, demand deposits lead it, both being procyclical, while the capital adequacy ratio (CAR) is countercyclical. In addition, a shock to interest rates reduces loans (total, commercial, consumption), and increases non-performing loans (NPL) and the capital adequacy ratio (CAR). A shock to GDP growth has a positive effect on loans and ROE, and a negative impact on NPL and CAR.
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