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Monetary Policy in a Developing Country: Loan applications and Real effects

Camelia Minoui (), Charles Abuka, Ronnie K. Alinda, Jose-Luis Peydro () and Andrea Presbitero
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Camelia Minoui: International Monetary Fund

No 09/2015, NCID Working Papers from Navarra Center for International Development, University of Navarra

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: Monetary policy transmission; Bank leading channel; Bank balance sheet channel, Developing countries (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-cba, nep-mac and nep-mon
Date: 2015-11
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http://ncid.unav.edu/download/file/fid/1166 (application/pdf)

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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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