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The Risk-Taking Channel in Colombia Revisited

  • Martha López

    ()

  • Fernando Tenjo

    ()

  • Héctor Zárate

    ()

Levels of interest rates below historical norms may have enhanced financial instability in developed and developing economies during the 2000's. The risk taking channel of monetary policy transmission is a recent theory that explains the interaction between risk perceptions of the financial system and monetary policy. This paper presents empirical evidence of the risk taking channel of monetary policy using detailed information on consumer and commercial loans from the Colombian banking system. Using probit and duration models we find that the banking system takes on more risk when the level of interest rates are too low. We also find that the response to interest rates is higher in the case of commercial loans.

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File URL: http://www.banrep.gov.co/docum/ftp/borra690.pdf
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Paper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 009313.

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Length: 57
Date of creation: 07 Feb 2012
Date of revision:
Handle: RePEc:col:000094:009313
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  1. Leonardo Gambacorta, 2009. "Monetary policy and the risk-taking channel," BIS Quarterly Review, Bank for International Settlements, December.
  2. Douglas W. Diamond & Raghuram G. Rajan, 2003. "Money in a Theory of Banking," NBER Working Papers 10070, National Bureau of Economic Research, Inc.
  3. Gabriel Jiménez & Steven Ongena & José Luis Peydró & Jesús Saurina, 2009. "Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking?," Banco de Espa�a Working Papers 0833, Banco de Espa�a.
  4. Piti Disyatat, 2010. "The bank lending channel revisited," BIS Working Papers 297, Bank for International Settlements.
  5. Martha López P. & Fernando Tenjo G. & Héctor Zárate Solano, . "The Risk-Taking Channel and Monetary Transmission Mechanism in Colombia," Borradores de Economia 616, Banco de la Republica de Colombia.
  6. Eliana González & Luis F. Melo & Luis E. Rojas & Brayan Rojas, 2010. "Estimations of the natural rate of interest in Colombia," BORRADORES DE ECONOMIA 007667, BANCO DE LA REPÚBLICA.
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