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Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects

Charles Abuka, Ronnie Alinda, Camelia Minoiu (), Jose-Luis Peydro () and Andrea Presbitero ()

No 12171, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The finance-growth literature argues that institutional constraints in developing countries impede financial intermediation and monetary policy transmission. Recent studies using aggregate data document a weak bank lending channel. For identification, we instead exploit Uganda's super- visory credit register, with loan applications and rates, and unanticipated variation in monetary policy. A monetary tightening strongly reduces credit supply - increasing loan application rejections and tightening volume and rates - especially for banks with more leverage and sovereign debt exposure (even within the same borrower-period). There are spillovers on inflation and eco- nomic activity, especially in more financially-developed areas, including on commercial building, trade, and social unrest.

Keywords: Bank credit; bank lending channel; developing countries; Financial Development; monetary policy; Real effects (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 E58 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2017-07
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