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Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment

Vasso Ioannidou, Steven Ongena and Jose-Luis Peydro ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the US. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking we assess collateral coverage, expected returns and risk premia of the newly-granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

Keywords: Monetary policy; low short-term interest rates; softening lending standards; credit risk; liquidity risk; subprime borrowers; bank agency problems; duration analysis. (search for similar items in EconPapers)
JEL-codes: E44 E5 G01 G21 G28 L14 (search for similar items in EconPapers)
Date: 2007-09, Revised 2008-10
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Related works:
Journal Article: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2015) Downloads
Journal Article: Monetary Policy, Risk-Taking and Pricing: Evidence from a Quasi-Natural Experiment (2015) Downloads
Working Paper: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2009) Downloads
Working Paper: Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment (2009) Downloads
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