Bank Lending Channel and the Monetary Transmission Mechanism: the Case of Chile

This paper analyses the evidence about the bank-lending channel in Chile during the period 1990- 2002 using data from both the banking sector and the corporate sector. First, we estimate a panel data of banks to identify shifts in the loan supply curve in response to changes in monetary policy. Second, taking into consideration the evidence gathered in the previous step, we construct an aggregate variable aimed to capture the main forces behind the bank lending channel, and we estimate a VAR system to test whether or not this channel exacerbates the effect of a monetary policy shock over macroeconomic activity. We conclude that the bank-lending channel has operated as a monetary policy transmission mechanism in Chile during the sample period, having an independent and significant effect in terms of macroeconomic activity.