## Monetary Policy in a Developing Country: Loan Applications and Real Effects

_IMF Working Papers, December 23, 2015_

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**Canonical URL:** [Monetary Policy in a Developing Country: Loan Applications and Real Effects](https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-in-a-developing-country-loan-applications-and-real-effects-43488)

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## Bibliographic details
- Authors: Charles Abuka, Ronnie K Alinda, Camelia Minoiu, José-Luis Peydró, Andrea F Presbitero
- Published: December 23, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513529813.001

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### Study scope and data
- Country and period analyzed: Uganda during 2010–2014.
- Data source: supervisory dataset of loan applications and granted loans.
- Event focus: a short period during which the policy rate rose by 1,000 basis points and then came down by 1,200 basis points.
- Authors: Charles Abuka, Ronnie K Alinda, Camelia Minoiu, José-Luis Peydró, Andrea F Presbitero.
- Publication details:
  - Publication type: IMF Working Paper No. 2015/270.
  - Date: December 23, 2015.
  - Pages: 36.
  - Volume: 2015.
  - Issue: 270.
  - DOI: https://doi.org/10.5089/9781513529813.001
  - ISBN: 9781513529813
  - ISSN: 1018-5941
  - Stock No: WPIEA2015270

### Main empirical findings
- Transmission impairment:
  - Monetary policy transmission to credit aggregates and the real economy can be impaired by weaknesses in the contracting environment, shallow financial markets, and a concentrated banking system.
- Bank lending channel evidence:
  - An increase in interest rates reduces the supply of bank credit on both the extensive margin (fewer loans granted) and the intensive margin (smaller loan amounts).
  - There is significant pass-through from policy interest rates to retail lending rates.
- Bank balance sheet channel:
  - A strong bank balance sheet channel is documented: the lending behavior of banks with high capital and liquidity is different from the lending behavior of banks with low capital and liquidity.
- Real activity heterogeneity:
  - The impact of monetary policy on real activity across districts depends on banking sector conditions.
- Overall conclusion:
  - Results indicate significant real effects of the bank lending channel in developing countries.

### Key concepts and subjects covered
- Subject tags from the source:
  - Asset and liability management
  - Bank credit
  - Banking
  - Credit
  - Financial institutions
  - Financial statements
  - Liquidity
  - Loans
  - Money
  - Public financial management (PFM)
- Keywords from the source:
  - bank balance
  - Bank balance sheet channel
  - bank capital
  - Bank credit
  - Bank lending channel
  - Credit
  - demand shock
  - Developing countries
  - East Africa
  - Financial statements
  - lending rate
  - Liquidity
  - Loans
  - market power
  - Monetary policy transmission
  - Sub-Saharan Africa
  - WP

### Policy implications and interpretation
- Monetary policy effectiveness:
  - In environments with weak contracting frameworks, shallow financial markets, and concentrated banking systems, conventional monetary policy actions can significantly affect credit supply and real activity through the bank lending channel.
- Role of bank balance sheets:
  - Policymakers should consider bank capital and liquidity positions when assessing monetary policy transmission and potential real economy effects.
- Geographic heterogeneity:
  - Regional or district-level banking conditions can shape heterogeneous real effects of uniform monetary policy actions.

*Source: IMF Working Paper No. 2015/270, "Monetary Policy in a Developing Country: Loan Applications and Real Effects" (December 23, 2015).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/monetary-policy-in-a-developing-country-loan-applications-and-real-effects-43488_