Monetary policy, risk taking, and pricing:evidence from a quasi-natural experiment

Ioannidou, Vasso and Ongena, Steven and Peydró, José Luis (2015) Monetary policy, risk taking, and pricing:evidence from a quasi-natural experiment. Review of Finance, 19 (1). pp. 95-144. ISSN 1572-3097

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Abstract

We study the risk-taking channel of monetary policy in Bolivia, a dollarized country where monetary changes are transmitted exogenously from the USA. We find that a lower policy rate spurs the granting of riskier loans, to borrowers with worse credit histories, lower ex-ante internal ratings, and weaker ex-post performance (acutely so when the rate subsequently increases). Effects are stronger for small firms borrowing from multiple banks. To uniquely identify risk-taking, we assess collateral coverage, expected returns, and risk premia of the newly granted riskier loans, finding that their returns and premia are actually lower, especially at banks suffering from agency problems.

Item Type:
Journal Article
Journal or Publication Title:
Review of Finance
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2003
Subjects:
ID Code:
71491
Deposited By:
Deposited On:
29 Oct 2014 12:00
Refereed?:
Yes
Published?:
Published
Last Modified:
09 Sep 2020 02:23