Review of Finance Vol. 19 No. 1 2015
Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment
open access
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.
- DOI
- 10.1093/rof/rfu035
- Volume
- 19
- Issue
- 1
- Pages
- 95-144
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref