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Macroeconomic Fluctuations and Bank Behavior in Chile

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Author Info
Adolfo Barajas
Leonardo Luna
Jorge Restrepo
Abstract

The purpose of this study is to analyze bank behavior in Chile over time, exploring how their balance sheets and performance move in both the short and the long run, and their reaction to macroeconomic shocks. The evolution of banking aggregates over an 18-year period (1989- 2006), using quarterly data is examined. Techniques common in the real business cycle literature are applied to establish empirical patterns. Robustness tests using several filters are performed. The effects of macro shocks on banking variables are analyzed, both by means of an event study, and by estimating impulse responses with VARs. The results show that credit lags the cycle, demand deposits lead it, both being procyclical, while the capital adequacy ratio (CAR) is countercyclical. In addition, a shock to interest rates reduces loans (total, commercial, consumption), and increases non-performing loans (NPL) and the capital adequacy ratio (CAR). A shock to GDP growth has a positive effect on loans and ROE, and a negative impact on NPL and CAR.

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Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 436.

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Date of creation: Nov 2007
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Handle: RePEc:chb:bcchwp:436

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  1. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January. [Downloadable!] (restricted)
  2. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November. [Downloadable!] (restricted)
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  3. Anil Kashyap & Jeremy C. Stein, 2004. "Cyclical implications of the Basel II capital standards," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-31. [Downloadable!]
  4. Ralph Chami & Thomas F. Cosimano, 2001. "Monetary Policy with a Touch of Basel," IMF Working Papers 01/151, International Monetary Fund. [Downloadable!]
  5. Adolfo Barajas & Ralph Chami & Thomas F. Cosimano, 2005. "Did the Basel Accord cause a Credit Slowdown in Latin America?," IMF Working Papers 05/38, International Monetary Fund. [Downloadable!]
  6. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05. [Downloadable!] (restricted)
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  7. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-39, May. [Downloadable!] (restricted)
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  8. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier. [Downloadable!] (restricted)
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  9. Bernanke, Ben S & Blinder, Alan S, 1992. "The Federal Funds Rate and the Channels of Monetary Transmission," American Economic Review, American Economic Association, vol. 82(4), pages 901-21, September. [Downloadable!] (restricted)
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