Credit channel in developing countries: the case of Colombia
Keywords:
Credit channel, banking, Emerging economies, panel dataAbstract
This paper uses a panel data set containing monthly information from the balance sheets of 20 banks between 1995 and 2003. It follows an estimation procedure proposed by Arellano and Bond which applies autocorrelation into panel data using a Generalized Method of Moments (GMM) estimator. The model includes particular characteristics to determine the existence of a bank lending channel including: size, liquidity, capitalization and foreign capital. The bank lending channel literature argues that differences in the characteristics and initial position of banks are reflected in their ability to offset the effects of a tightening monetary policy. It has been proved that in Colombia there is a negative response of loans to changes in the interest rate, but bigger, liquid or capitalized banks are better able to maintain the same level of loans in the face of a tightening monetary policy.
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