Macroeconomic Fluctuations and Bank Behavior in Chile

36 Pages Posted: 31 Dec 2008

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Leonardo Luna

University of Santiago, Chile

Jorge E. Restrepo

Banco Central de Chile

Abstract

The purpose of this study is to analyze bank behavior in Chile over time, looking at how their balance sheets and performance move both in the short and long run, and how they react to macroeconomic shocks. The evolution of banking aggregates over an 18 year period (1989-2006), using quarterly data is examined. Techniques common in the real business cycle literature are applied to establish empirical patterns. Robustness tests using several filters are performed. The effects of macro shocks on banking variables are analyzed, both by means of an event study, and by estimating impulse responses with VARs. The results show that credit lags the cycle, demand deposits lead it, both being procyclical, while the capital adequacy ratio (CAR) is countercyclical. In addition, a shock to interest rates reduces loans (total, commercial, consumption), and increases non performing loans (NPL) and the capital adequacy ratio (CAR). A shock to GDP growth has a positive effect on loans, return over equity (ROE), and a negative impact on NPL and CAR.

Keywords: Banks, Macroeconomics, Financial Markets, Credit, Monetary Policy.

JEL Classification: G21, E44, E51, E52, E58

Suggested Citation

Barajas, Adolfo and Luna, Leonardo and Restrepo, Jorge E., Macroeconomic Fluctuations and Bank Behavior in Chile. Revista de Análisis Económico/Economic Analysis Review, Vol. 23, No. 2, pp. 21-56, December 2008. Available at SSRN: https://ssrn.com/abstract=1321508

Adolfo Barajas (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

Leonardo Luna

University of Santiago, Chile ( email )

Santiago
Chile

Jorge E. Restrepo

Banco Central de Chile ( email )

Publicaciones
Huerfanos 1185
Santiago
Chile

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