Macroeconomic Fluctuations and Bank Behavior in Chile

Adolfo Barajas, Leonardo Luna and Jorge Restrepo
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Leonardo Luna: Transelec S.A. and University of Santiago (USACH).
Jorge Restrepo: Central Bank of Chile

Revista de Analisis Economico – Economic Analysis Review, 2008, vol. 23, issue 1, 21-56

Abstract: The purpose of this study is to analyze bank behavior in Chile over time, looking at how their balance sheets and performance move both in the short and long run, and how they react to macroeconomic shocks. The evolution of banking aggregates over an 18 year period (1989-2006), using quarterly data is examined. Techniques common in the real business cycle literature are applied to establish empirical patterns. Robustness tests using several filters are performed. The effects of macro shocks on banking variables are analyzed, both by means of an event study, and by estimating impulse responses with VARs. The results show that credit lags the cycle, demand deposits lead it, both being procyclical, while the capital adequacy ratio (CAR) is countercyclical. In addition, a shock to interest rates reduces loans (total, commercial, consumption), and increases non performing loans (NPL) and the capital adequacy ratio (CAR). A shock to GDP growth has a positive effect on loans, return over equity (ROE), and a negative impact on NPL and CAR.

Keywords: Banks; Macroeconomics; Financial Markets; Credit; Monetary Policy. (search for similar items in EconPapers)
JEL-codes: E44 E51 E52 E58 G21 (search for similar items in EconPapers)
Date: 2008
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Working Paper: Macroeconomic Fluctuations and Bank Behavior in Chile (2007)
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