Essays on Economic Policy (ESPE in Spanish) - The Risk-taking Channel in Colombia Revisited

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In the journal Essays on Economic Policy (ESPE) - we disclose the results and policy proposals that arise from academic research carried out at the Banco de la República. When you read us, always keep in mind that the content of our articles, as well as the analyzes and conclusions derived from them, are the sole responsibility of their authors. The material disclosed in our ESPE magazine does not compromise or represent the opinion of Banco de la República or that of its Board of Directors.

AUTHOR OR EDITOR
Martha López, Fernando Tenjo, Héctor Zárate
Publication Date:
Friday, 01 June 2012

Levels of interest rates below historical norms may have enhanced financial instability in both developed and in developing economies during the 2000´s. The risk-taking channel of monetary transmission policy is a recent theory that explains the interaction between risk perceptions of the financial system and monetary policy. This paper presents empirical evidence of the risk-taking channel of monetary policy using detailed information on consumer and commercial loans from the Colombian banking system. Using probit and duration models, we find that the banking system takes on more risk when the level of interest rates are too low. We also find that the response to interest rates is higher in the case of commercial loans.