DP12171 Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects
|Author(s):||Charles Abuka, Ronnie Alinda, Camelia Minoiu, José Luis Peydró, Andrea Presbitero|
|Publication Date:||July 2017|
|Keyword(s):||Bank credit, bank lending channel, developing countries, Financial Development, monetary policy, Real effects|
|JEL(s):||E42, E44, E52, E58, G21, G28|
|Programme Areas:||Financial Economics, Development Economics, Monetary Economics and Fluctuations|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=12171|
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.