Bank Lending Channel in Brazil: Evidence from the Composition of External Finance of Public and Private Firms

Abstract

This article examines the existence of an active channel of transmission of monetary policy, known as the bank-lending channel. We build an original database of 291 public and 4,735 private companies and analyze the reactions of their bank loans to monetary contractions. Our results show that firms with greater financial restrictions decrease their demand for bank credit after monetary contraction, as predicted by the theory of bank lending.