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Monetary Policy Tightening and Bank Lending Standards: Evidence from the Chilean Bank Loan Survey

Author

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  • Helmut Franken
  • Alejandro Jara

Abstract

Our paper studies the banking channel as an amplification mechanism of monetary policy shocks in an Emerging Market Economy. We analyze the aggregated responses to the Chilean Bank Loan Survey, focusing on the average response of lending standards across different credit segments. Our results show that a positive monetary policy shock tightenslending standards in all credit segments, with corporate and mortgage loans being less sensitive than SMEs and consumer loans. We also examine the impact of monetary policy shocks on lending standards during periods of highly contractionary monetary policystance and periods when banks’ capital position becomes a constraint. We find statistically significant amplification effects within these periods, affecting different credit segments heterogeneously. Overall, our results support the notion that the banking channel operates as an effective amplification mechanism, providing evidence consistent with a self-reinforcing operation of the bank-lending, risk-taking, and balance-sheet channels.

Suggested Citation

  • Helmut Franken & Alejandro Jara, 2023. "Monetary Policy Tightening and Bank Lending Standards: Evidence from the Chilean Bank Loan Survey," Working Papers Central Bank of Chile 996, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:996
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