Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment
Monetary policy, risk-taking and pricing: Evidence from a quasi-natural experiment
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- Review of Finance, 19(1), 2015, 95-144
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We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the US. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking we assess collateral coverage, expected returns and risk premia of the newly-granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.Director i departament
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