International Commodity Prices and Domestic Bank Lending in Developing Countries

Author/Editor:

Isha Agrawal ; Rupa Duttagupta ; Andrea Presbitero

Publication Date:

December 14, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

We study the role of the bank-lending channel in propagating fluctuations in commodity prices to credit aggregates and economic activity in developing countries. We use data on more than 1,600 banks from 78 developing countries to analyze the transmission of changes in international commodity prices to domestic bank lending. Identification relies on a bankspecific time-varying measure of bank sensitivity to changes in commodity prices, based on daily data on bank stock prices. We find that a fall in commodity prices reduces bank lending, although this effect is confined to low-income countries and driven by commodity price busts. Banks with relatively lower deposits and poor asset quality transmit commodity price changes to lending more aggressively, supporting the hypothesis that the overall credit response to commodity prices works also through the credit supply channel. Our results also show that there is no significant difference in the behavior of foreign and domestic banks in the transmission process, reflecting the regional footprint of foreign banks in developing countries.

Series:

Working Paper No. 17/279

Subject:

English

Publication Date:

December 14, 2017

ISBN/ISSN:

9781484333044/1018-5941

Stock No:

WPIEA2017279

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

44

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