El canal de préstamos de la política monetaria en colombia. un enfoque FAVAR

Abstract

A Factor-Augmented Vector Autoregression model (FAVAR) is developed to assess whether banks' financial conditions, as reflected by bank-level information, matter for the transmission of monetary policy, while reconciling the micro and macro levels of analysis. We include factors summarizing large sets of individual bank balance sheet ratios in a FAVAR for the Colombian economy. We find that factors extracted from banks' liquidity, solvency and leverage ratios help to understand macroeconomic dynamics. However, these dynamics, in turn, are affected by the monetary policy stance. We also find that bank liquidity exhibits the stronger relationship with the overall economy in the transmission of monetary shocks. Generally, this paper lends support to the claim that monetary policy analysis is best approached with models that take into account credit and finance.