Financing structure and heterogeneous effects of monetary policy

This work documents the existence of a heterogeneous banking channel in Peru, where monetary policy actions have a differentiated impact on the credit market, which depends on the level of leverage of financial institutions. Using financial entity-level data, we demonstrate that this external financing component primarily determines a heterogeneous monetary policy lending channel. To show the causal effects of this financing structure channel, we use microdata at the branch level, together with an econometric strategy that focuses on local credit markets. The dependence on external funding at the branch level determines the heterogeneity in the credit channel, for the monetary policy transmission, with two important margins: an amplifying effect and another attenuating effect, associated with a lower or higher level of leverage, or with a greater or lesser need for external funding, respectively. To provide a theoretical underpinning for our empirical findings, we develop a formal model that demonstrates that banks' financing structure amplifies or attenuates the influence of monetary policy.