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Identifying the Bank Lending Channel in Brazil through Data Frequency

Author

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  • Joao Manoel Pinho de Mello
  • Marcio Garcia
  • Christiano Arrigoni
Abstract
We study how monetary policy affects bank lending behavior with an unique database and an event-study approach. Using the daily frequencies of interest rates and new loans in our data as a source of identification, we estimate banks´ reactions to monetary policy committee (Copom) decisions and to announcements of reserve requirement changes. We argue that these estimated reduced-form coefficients can be interpreted as supply shifts. The behavior of the estimates corroborates the claim that we capture supply movements, since new loans depends negatively on unexpected basic interest rate and reserve requirements changes, and the opposite is true for the lending interest rate. Evidence suggests that banking lending channel is unimportant. Results are robust to using different bank characteristics to define financial constraint, to the monetary policy instrument - basic interest rates or reserve requirement -, and to the measure of monetary policy stance.

Suggested Citation

  • Joao Manoel Pinho de Mello & Marcio Garcia & Christiano Arrigoni, 2010. "Identifying the Bank Lending Channel in Brazil through Data Frequency," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 47-79, January.
    • Handle: RePEc:col:000425:008579
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    References listed on IDEAS

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    1. Takeda, Tony & Rocha, Fabiana & Nakane, Márcio I., 2005. "The Reaction of Bank Lending to Monetary Policy in Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 59(1), January.
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    5. Friedman, Milton, 1972. "Have Monetary Policies Failed?," American Economic Review, American Economic Association, vol. 62(2), pages 11-18, May.
    6. Marco Arena & Carmen Reinhart & Francisco Vázquez, 2006. "The Lending Channel in Emerging Economics: Are Foreign Banks Different?," NBER Working Papers 12340, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Ms. Mercedes Garcia-Escribano, 2013. "Monetary Transmission in Brazil: Has the Credit Channel Changed?," IMF Working Papers 2013/251, International Monetary Fund.
    2. Ramos-Tallada, Julio, 2015. "Bank risks, monetary shocks and the credit channel in Brazil: Identification and evidence from panel data," Journal of International Money and Finance, Elsevier, vol. 55(C), pages 135-161.
    3. De Mello, João Manoel P. & Garcia, Márcio G.P., 2012. "Bye, bye financial repression, hello financial deepening: The anatomy of a financial boom," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 135-153.
    4. Marco Bonomo & Bruno Martins, 2016. "The Impact of Government-Driven Loans in the Monetary Transmission Mechanism: what can we learn from firm-level data?," Working Papers Series 419, Central Bank of Brazil, Research Department.
    5. Montes, Gabriel Caldas, 2013. "Credibility and monetary transmission channels under inflation targeting: An econometric analysis from a developing country," Economic Modelling, Elsevier, vol. 30(C), pages 670-684.
    6. Francisco J. S. Rocha & Marcos R. V. Magalhaes & Ã tila Amaral Brilhante, 2022. "A BVAR Analysis on Channels of Monetary Policy Transmission in Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(3), pages 1-19, February.
    7. Gabriel Caldas Montes & Gabriel Gonçalves do Vale Monteiro, 2014. "Monetary policy, prudential regulation and investment," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(6), pages 881-906, November.
    8. Jose Angelo Divino & Carlos Haraguchi, 2023. "Observed and expected interest rate pass-through under remarkably high market rates," Empirical Economics, Springer, vol. 65(1), pages 203-246, July.
    9. Montes, Gabriel Caldas & Peixoto, Gabriel Barros Tavares, 2014. "Risk-taking channel, bank lending channel and the “paradox of credibility”," Economic Modelling, Elsevier, vol. 39(C), pages 82-94.
    10. Kapounek, Svatopluk & Kučerová, Zuzana & Fidrmuc, Jarko, 2017. "Lending conditions in EU: The role of credit demand and supply," Economic Modelling, Elsevier, vol. 67(C), pages 285-293.
    11. Marco Carreras, 2020. "Investigating the Role of BNDES as a Tool to Transmit Countercyclical Policy Decisions: Evidence from 2002-2016," SPRU Working Paper Series 2020-02, SPRU - Science Policy Research Unit, University of Sussex Business School.
    12. Gabriel Caldas Montes & Caroline Cabral Machado, 2013. "Credibility and the credit channel transmission of monetary policy theoretical model and econometric analysis for Brazil," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(4), pages 469-492, August.
    13. Gabriel Caldas Montes & José Américo Pereira Antunes & Alexei Ferreira Araújo, 2021. "Effects of monetary policy and credibility on financial intermediation: evidence from the Brazilian banking sector," Empirical Economics, Springer, vol. 60(3), pages 1191-1219, March.
    14. Luis Fernando Colunga Ramos, 2024. "The Loan Puzzle in Mexico," Working Papers 2024-15, Banco de México.

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    More about this item

    Keywords

    monetary policy transmission; credit markets;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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