Monetary policy and bank lending in developing countries: loan applications, rates, and real effects

Abstract

Recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data. In this paper, we bring new evidence using Ugandaâ s supervisory credit register, with microdata on loan applications, volumes and rates, coupled with unanticipated variation in monetary policy. We show that a monetary contraction reduces bank credit supplyâ increasing loan application rejections and tightening loan volume and ratesâ especially for banks with more leverage and sovereign debt exposure. There are associated spillovers on inflation and economic activityâ including construction permits and tradeâ and even social unrest.