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
Date Revised: July 2020
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.