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The Bank Lending Channel of Monetary Transmission in Brazil: A VECM Approach

  • Luiz de Mello
  • Mauro Pisu

This paper tests for the existence of a bank lending channel in the transmission of monetary policy in Brazil using monthly aggregate data for the period 1995:12 through 2008:6. The test is carried out in a VECM setting that allows for multiple cointegrating relationships among the variables of interest. We find evidence of two cointegrating vectors, which we identify as bank loan demand and supply functions by testing for a number of exclusion and exogeneity restrictions on the cointegrating relationships. Loan supply is negatively related to the interbank deposit certificate rate in the long term, which confirms the existence of a lending channel for monetary transmission. The VECM’s short-term dynamics show that loan demand is equilibrium-correcting. But short-term disequilibria in the supply of loans are corrected through changes in the interbank deposit certificate rate, suggesting that monetary policy plays a role in restoring equilibrium in the credit market by affecting the borrowing rate faced by banks to raise non-deposit funds. This Working Paper relates to the 2009 OECD Economic Survey of Brazil (www.oecd.org/eco/surveys/brazil) Le crédit bancaire comme canal de transmission de la politique monétaire au Brésil : Un modèle à correction d'erreur Ce document teste l’hypothèse de l’existence du crédit bancaire comme canal de transmission de la politique monétaire au Brésil à l’aide de données mensuelles agrégées pour la période allant de décembre 1995 à juin 2008. Le test est effectué dans le cadre d’un modèle à correction d’erreur (VECM) qui permet plusieurs vecteurs de cointégration parmi les variables d’intérêt. L’analyse empirique révèle l’existence de deux vecteurs de cointégration, que nous identifions comme la demande et l’offre de crédit bancaire sur la base d’un certain nombre de restrictions d’exclusion et d’exogénéité imposées sur les vecteurs de cointégration. L’offre des prêts bancaires est inversement liée au taux de long terme des certificats de dépôt interbancaire, ce qui confirme l’existence du crédit bancaire comme canal de transmission de la politique monétaire. La dynamique de court terme du VECM montre que la demande des prêts s’ajuste à l’équilibre de long terme. Mais à court terme, les déséquilibres dans l'offre des prêts sont corrigés par des changements dans le taux des certificats de dépôt interbancaire, ce qui suggère que la politique monétaire joue un rôle dans le rétablissement de l’équilibre sur le marché du crédit en affectant le taux d’emprunt des banques. Ce Document de travail se rapporte à l’Étude économique de l’OCDE du Brésil, 2009 (www.oecd.org/eco/etudes/brésil).

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File URL: http://dx.doi.org/10.1787/222818683155
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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 711.

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Date of creation: 10 Jul 2009
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Handle: RePEc:oec:ecoaaa:711-en
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  1. Johansen, S ren, 2000. "A Bartlett Correction Factor For Tests On The Cointegrating Relations," Econometric Theory, Cambridge University Press, vol. 16(05), pages 740-778, October.
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  4. Kit, Pong Wong, 1997. "On the determinants of bank interest margins under credit and interest rate risks," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 251-271, February.
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  30. repec:fgv:epgrbe:v:59:n:1:a:5 is not listed on IDEAS
  31. Jan Kakes, 2000. "Identifying the mechanism: is there a bank lending channel of monetary transmission in the Netherlands?," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 63-67.
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