Paper #1703

Title:

Monetary policy and bank lending in developing countries: loan applications, rates, and real effects

Authors:

Charles Abuka, Ronnie K. Alinda, Camelia Minoiu, José-Luis Peydró and Andrea F. Presbitero

Date:

November 2018

Abstract:

Recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data. In this paper, we bring new evidence using Uganda’s supervisory credit register, with microdata on loan applications, volumes and rates, coupled with unanticipated variation in monetary policy. We show that a monetary contraction reduces bank credit supply—increasing loan application rejections and tightening loan volume and rates—especially for banks with more leverage and sovereign debt exposure. There are associated spillovers on inflation and economic activity—including construction permits and trade—and even social unrest.

Keywords:

Bank lending channel of monetary policy; bank credit; real effects; credit register; developing countries

JEL codes:

E42; E44; E52; E58; G21; G28.

Area of Research:

Finance and Accounting / Political Economy

Published in:

Journal of Development Economics, 139, 185-202, june 2019

Download the paper in PDF format (2,589 Kb)