What Microeconomic Banks Data Tell Us About Monetary Policy Transmission and Financial Stability in Guatemala

José Alfredo Blanco-Valdés () and Hector Valle ()
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José Alfredo Blanco-Valdés: Banco de Guatemala

Chapter 3 in Monetary Policy and Financial Stability in Latin America and the Caribbean, 2018, pp 41-105 from Centro de Estudios Monetarios Latinoamericanos, CEMLA

Abstract: This paper aims to research the credit channel in Guatemala in a microeconomic context. The country currently conducts its monetary policy through an explicit inflation targeting regime, and previous studies have concluded that the monetary policy transmission mechanism is rather weak. However, the empirical evidence of those studies is based on aggregate data. This paper contributes by performing detailed analysis of individual data for each bank, classified by bank size and loan type. The hypothesis is that policy transmission is heterogeneous by these characteristics. First, a descriptive analysis of the response of interest rates and lending to policy rate variations is carried out. Second, econometric panel data techniques are applied to estimate the lending channel. We find that there is a transmission of monetary policy, but it is heterogeneous, and liquidity, capitalization and bank size play an important role in it. The factors contributing to weakening the mechanism are excess liquidity in the banking system, portfolio dollarization, bank size and the method for calculating reserve requirement.

Keywords: monetary transmission mechanisms; credit channel; financial stability. (search for similar items in EconPapers)
JEL-codes: C23 E52 (search for similar items in EconPapers)
Date: 2018
ISBN: 978-607-7734-89-5 (printed)
Note: Joint Research Program XIX Meeting of the Central Bank Researchers Network
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