Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects

50 Pages Posted: 25 Jul 2017

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 Presbitero

International Monetary Fund (IMF)

Date Written: July 2017

Abstract

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 supervisory 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 economic activity, especially in more financially-developed areas, including on commercial building, trade, and social unrest.

Keywords: Bank credit, bank lending channel, developing countries, Financial Development, monetary policy, Real effects

JEL Classification: E42, E44, E52, E58, G21, G28

Suggested Citation

Abuka, Charles Augustine and Alinda, Ronnie Kyamureku and Minoiu, Camelia and Peydro, Jose-Luis and Presbitero, Andrea, Financial Development and Monetary Policy: Loan Applications, Rates, and Real Effects (July 2017). CEPR Discussion Paper No. DP12171. Available at SSRN: https://ssrn.com/abstract=3008353

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 Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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