Sectoral credit reallocation: An excessive bank risk-taking explanation
Jorge Pozo
Emerging Markets Review, 2023, vol. 54, issue C
Abstract:
This paper develops a theoretical model to provide an alternative explanation for the credit to nontradable sector growing faster than credit to tradable sector, after a US expansionary monetary policy, based on an excessive risk-taking channel. This is, a reduced foreign interest rate decreases bank default probability, which in turn diminishes banks’ incentives to take excessive risk. This produces a reallocation of loan supply to nontradable sector since tradable loans are riskier. Using monthly sectoral credit data at the bank level for the Peruvian economy in the 2004–2019 period, we find evidence of the excessive bank risk-taking channel on sectoral credit reallocation.
Keywords: Nontradable loans; Tradable loans; Real exchange rate; Bank risk-taking; Open economy (search for similar items in EconPapers)
JEL-codes: E44 E52 F41 G01 G21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:54:y:2023:i:c:s1566014122000899
DOI: 10.1016/j.ememar.2022.100972
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