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Title: Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects

Author(s): Charles Abuka, Ronnie Alinda, Camelia Minoiu, José Luis Peydró and Andrea Presbitero

Publication Date: July 2017

Keyword(s): Bank credit, bank lending channel, developing countries, Financial Development, monetary policy and Real effects

Programme Area(s): Development Economics, Financial Economics and Monetary Economics and Fluctuations

Abstract: The finance-growth literature argues that institutional constraints in developing countries impede financial intermediation and monetary policy transmission. Recent studies using aggregate data document a weak bank lending channel. For identification, we instead exploit Uganda's super- visory credit register, with loan applications and rates, and unanticipated variation in monetary policy. A monetary tightening strongly reduces credit supply-increasing loan application rejections and tightening volume and rates-especially for banks with more leverage and sovereign debt exposure (even within the same borrower-period). There are spillovers on inflation and eco- nomic activity, especially in more financially-developed areas, including on commercial building, trade, and social unrest.

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Bibliographic Reference

Abuka, C, Alinda, R, Minoiu, C, Peydró, J and Presbitero, A. 2017. 'Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12171