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Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina

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Author Info
Alberto Humala
Abstract

The dynamic relationship between a money market (interbank) rate and different short-term lending rates is analysed by measuring the pass-through process between these rates in the Argentinean banking system. Neither linear single-equation modelling nor linear multi-equation systems capture efficiently this relationship. The presence of several episodes of financial crises alters the speed and degree of response to shocks in the interbank rate. Thus, a Markov switching VAR model shows that under normal financial conditions short-run stickiness is higher for those rates on loans with higher credit risk. But it also shows that when there is a high-volatility scenario, the pass-through increases considerably for all interest rates. The MSIAH(2)-VAR(1) identifies correctly periods of financial distress (in which regime switch occurs).

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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 2 (January)
Pages: 77-94
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Handle: RePEc:taf:apfiec:v:15:y:2005:i:2:p:77-94

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