Transmission of monetary policy and bank heterogeneity in Colombia

Abstract

This study provides evidence of bank heterogeneity in Colombia for the period 2002-2014 and analyzes how bank-specific characteristics determine the bank-lending channel for monetary policy -- To analyze bank heterogeneity, this study estimates technical (cost) efficiency using Stochastic Frontier Analysis, which also allows for the measurement of Returns to Scale and a Lerner Index to proxy market power in the loans market -- This study also provides measures of capitalization, liquidity, and the commonly used ratios of financial and operational efficiency with bank’s balance-sheet data -- Furthermore, using a long and unbalanced panel, this study finds evidence of the existence of a bank-lending channel and finds that this transmission mechanism is determined by bank-specific characteristics -- The results suggest higher technical and operational efficiency, capitalization,liquidity and market power, increase the sensitivity of loans disbursements to monetary policy shocks, while higher returns to scale lowers this sensitivity