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Monetary Policy in a Developing Country: Loan Applications and Real Effects

Charles Abuka (), Ronnie K. Alinda (), Camelia Minoiu (), Jose-Luis Peydro () and Andrea Presbitero
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Charles Abuka: Bank of Uganda
Ronnie K. Alinda: Bank of Uganda

No 114, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We examine the bank lending channel in Uganda, a developing country where monetary policy transmission may be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. Our analysis employs a supervisory loan-level dataset and focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,100 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.

Keywords: Bank balance sheet channel; Bank lending channel; Developing countries; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E42 E44 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
Date: 2015-12
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Related works:
Working Paper: Monetary Policy in a Developing Country; Loan Applications and Real Effects (2015) Downloads
Working Paper: Monetary Policy in a Developing Country: Loan applications and Real effects (2015) Downloads
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