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Monetary Policy in a Developing Country: Loan applications and Real effects

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Listed:
  • Camelia Minoui

    (International Monetary Fund)

  • Charles Abuka
  • Ronnie K. Alinda
  • Jose-Luis Peydro
  • Andrea F. Presbitero

Abstract

We examine the bank lending channel in Uganda, a developing country where monetary policy transmission may be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. Our analysis employs a supervisory loan-level dataset and focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,100 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.

Suggested Citation

  • Camelia Minoui & Charles Abuka & Ronnie K. Alinda & Jose-Luis Peydro & Andrea F. Presbitero, 2015. "Monetary Policy in a Developing Country: Loan applications and Real effects," NCID Working Papers 09/2015, Navarra Center for International Development, University of Navarra.
  • Handle: RePEc:nva:unnvaa:wp09-2015
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    References listed on IDEAS

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    2. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2020. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," IWH Discussion Papers 21/2017, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Monetary policy transmission; Bank leading channel; Bank balance sheet channel; Developing countries;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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