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Credit risk and monetary pass-through—Evidence from Chile

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  • Pedersen, Michael

Abstract

This study presents a novel way to measure changes in commercial banks’ credit risk based on higher-order moments of the interest rate distribution. These measures are employed as control variables to investigate the pass-through of changes in the monetary policy rates (MPR) to retail banks’ lending rates to firms. Applying a multivariate framework it is shown that the introduced credit risk measures are statistically significant and have the expected signs. In this context, the pass-through is symmetric and complete in the short run. No evidence indicates that expectations of MPR changes matter for banks’ lending rates in Chile and robustness analyses indicate that neither do macroeconomic factors. The results suggest that credit risk should be taken into account when evaluating changes in banks’ lending rates and higher-order moments of the interest rate distribution are suitable for measuring changes in this risk.

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  • Pedersen, Michael, 2018. "Credit risk and monetary pass-through—Evidence from Chile," Journal of Financial Stability, Elsevier, vol. 36(C), pages 144-158.
    • Handle: RePEc:eee:finsta:v:36:y:2018:i:c:p:144-158
    DOI: 10.1016/j.jfs.2018.03.005
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    1. Henry Penikas, 2023. "Smoothing the Key Rate Pass-Through: What to Keep in Mind When Interpreting Econometric Estimates," Russian Journal of Money and Finance, Bank of Russia, vol. 82(3), pages 3-34, September.
    2. Juan Francisco Martínez & Daniel Oda & Gonzalo Marivil, 2022. "Pass-through from monetary policy to bank interest rates: A-symmetry analysis," Working Papers Central Bank of Chile 944, Central Bank of Chile.

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    More about this item

    Keywords

    Credit risk; Monetary pass-through; Retail lending rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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