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Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements

Cecilia Dassatti Camors, Jose-Luis Peydro () and Francesc Rodríguez Tous ()

No 1091, Working Papers from Barcelona Graduate School of Economics

Abstract: We analyze the impact of reserve requirements on the supply of credit to the real sector. For identification, we exploit a tightening of reserve requirements in Uruguay during a global capital inflows boom, where the change affected more foreign liabilities, in conjunction with its credit register that follows all bank loans granted to non-financial firms. Following a difference-in-differences approach, we compare lending to the same firm before and after the policy change among banks differently affected by the policy. The results show that the tightening of the reserve requirements for banks lead to a reduction of the supply of credit to firms. Importantly, the stronger quantitative results are for the tightening of reserve requirements to bank liabilities stemming from non-residents. Moreover, more affected banks increase their exposure into riskier firms, and larger banks mitigate the tightening effects. Finally, the firm-level analysis reveals that the cut in credit supply in the loan-level analysis is binding for firms. The results have implications for global monetary and financial stability policies.

JEL-codes: E51 E52 F38 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: 2019-03
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