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Policy response to COVID-19 shock: measuring policy impacts on lending interest rates with granular data

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  • Cecilia Dassatti
  • Natalia Mariño

Abstract

As a response to the COVID-19 shock, the Uruguayan government expanded an existing public credit guarantee and introduced deductions in local currency reserve requirements. Policies of the same nature were also implemented by several governments throughout the world. This paper contributes to the financial additionality literature and the literature on the bank lending view of the monetary policy by analyzing the impact of this type of policies on loans’ interest rate spread over the interbank rate. Using a very detailed database on loan contracts, we estimate a dynamic panel model to analyze the effects of policy responses to the COVID-19 shock over loan interest rates. We find that the PCG policy had a relatively higher effect on loans’ interest rates in comparison to the reserve requirements policy.

Suggested Citation

  • Cecilia Dassatti & Natalia Mariño, 2023. "Policy response to COVID-19 shock: measuring policy impacts on lending interest rates with granular data," Estudios de Economia, University of Chile, Department of Economics, vol. 50(2 Year 20), pages 287-308, December.
    • Handle: RePEc:udc:esteco:v:50:y:2023:i:2:p:287-308
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/73211/75086
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    More about this item

    Keywords

    banks; COVID-19; PCG; reserve requirements; interest rate caps.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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