Monetary Policy in a Developing Country: Loan Applications and Real Effects

37 Pages Posted: 3 Feb 2016

See all articles by Charles Augustine Abuka

Charles Augustine Abuka

Bank of Uganda

Ronnie Kyamureku Alinda

Bank of Uganda

Camelia Minoiu

Federal Reserve Board

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Barcelona Graduate School of Economics (Barcelona GSE); Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2015

Abstract

The transmission of monetary policy to credit aggregates and the real economy can be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system. We empirically assess the bank lending channel in Uganda during 2010-2014 using a supervisory dataset of loan applications and granted loans. Our analysis focuses on a short period during which the policy rate rose by 1,000 basis points and then came down by 1,200 basis points. We find that an increase in interest rates reduces the supply of bank credit both on the extensive and intensive margins, and there is significant pass-through to retail lending rates. We document a strong bank balance sheet channel, as the lending behavior of banks with high capital and liquidity is different from that of banks with low capital and liquidity. Finally, we show the impact of monetary policy on real activity across districts depends on banking sector conditions. Overall, our results indicate significant real effects of the bank lending channel in developing countries.

Keywords: Monetary policy transmission, Bank lending channel, Bank balance sheet channel, Developing countries, bank, banks, credit, lending, interest, Financial Markets and the Macroeconomy, Monetary Policy (Targets, Instruments, and Effects), All Countries,

JEL Classification: E41, E44, E52, E58, E42

Suggested Citation

Abuka, Charles Augustine and Alinda, Ronnie Kyamureku and Minoiu, Camelia and Peydro, Jose-Luis and Presbitero, Andrea Filippo, Monetary Policy in a Developing Country: Loan Applications and Real Effects (December 2015). IMF Working Paper No. 15/270. Available at SSRN: https://ssrn.com/abstract=2727219

Charles Augustine Abuka (Contact Author)

Bank of Uganda ( email )

P.O. Box 7120
37/43 Kampala Road
Kampala
Uganda

Ronnie Kyamureku Alinda

Bank of Uganda ( email )

P.O. Box 7120
37/43 Kampala Road
Kampala
Uganda

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Jose-Luis Peydro

Catalan Institution of Research and Advanced Studies (ICREA) ( email )

P/ Lluis Companys 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

HOME PAGE: http://www.barcelonagse.eu/Faculty.php?id=432

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy
+39 0712207074 (Phone)

HOME PAGE: http://sites.google.com/site/presbitero/

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milan, 20100
Italy

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