Interest Rate Setting and the Colombian Monetary Transmission Mechanism
AbstractThis paper is concerned with interest rate setting by commercial banks and how the transmission of monetary policy is re°ected in these rates. For this purpose we study the case of the Colombian banking industry for the period 1996-2004. Using microdata, the Certi¯cate of Deposit(CD) market and the credit market are studied for a balanced panel of 21 and 16 banks, respectively. The paper motivates the discussion with a theoretical model that explains how banks set their interest rates and how these are a®ected by the policy rate. Overcoming some of the empirical di±culties presented in other studies, this paper deals with them by performing panel unit root tests and panel cointegration tests. The results suggest that the transmission of the policy rate to the CD rate and the credit rate is on average high and quick. Additionally, rates react strongly to in°ation shocks, specially credit rates. Finally, the evidence presented shows the importance of banks' characteristics and in°ation as long-run drivers of interest rates.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 352.
Date of creation:
Date of revision:
Banks; Monetary Policy; Interest Rates; Panel Data;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- 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
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-04 (All new papers)
- NEP-CBA-2005-10-04 (Central Banking)
- NEP-FMK-2005-10-04 (Financial Markets)
- NEP-LAM-2005-10-04 (Central & South America)
- NEP-MAC-2005-10-04 (Macroeconomics)
- NEP-MON-2005-10-04 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dairo Estrada & Poldy Osorio, .
"Effects of Financial Capital on Colombian Banking Efficiency,"
Borradores de Economia
291, Banco de la Republica de Colombia.
- Dairo Estrada & Poldy Osorio, . "Effects of Financial Capital on Colombian Banking Efficiency," Borradores de Economia 292, Banco de la Republica de Colombia.
- Rolf Larsson & Johan Lyhagen & Mickael Lothgren, 2001.
"Likelihood-based cointegration tests in heterogeneous panels,"
Royal Economic Society, vol. 4(1), pages 41.
- Larsson, Rolf & Lyhagen, Johan & Löthgren, Mickael, 1998. "Likelihood-Based Cointegration Tests in Heterogeneous Panels," Working Paper Series in Economics and Finance 250, Stockholm School of Economics, revised 27 Aug 1998.
- Solange Berstein & J. Rodrigo Fuentes, 2004.
"Is There Lendign Rate Stickiness in the Chilean Banking Industry?,"
Central Banking, Analysis, and Economic Policies Book Series,
in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 6, pages 183-210
Central Bank of Chile.
- Solange Berstein & Rodrigo Fuentes, 2003. "Is There Lending Rate Stickiness in the Chilean Banking Industry?," Working Papers Central Bank of Chile 218, Central Bank of Chile.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Gambacorta, Leonardo, 2008.
"How do banks set interest rates?,"
European Economic Review,
Elsevier, vol. 52(5), pages 792-819, July.
- Leonardo Gambacorta, 2004. "How Do Banks Set Interest Rates?," NBER Working Papers 10295, National Bureau of Economic Research, Inc.
- Leonardo Gambacorta, 2005. "How Do Banks Set Interest Rates?," Temi di discussione (Economic working papers) 542, Bank of Italy, Economic Research and International Relations Area.
- Esteban Gómez & Diego Vásquez & Camilo Zea, .
"Derivative Markets' Impact on Colombian Monetary Policy,"
Borradores de Economia
334, Banco de la Republica de Colombia.
- Esteban Gómez & Diego Vásquez & Camilo Zea, 2005. "Derivative Markets' Impact On Colombian Monetary Policy," BORRADORES DE ECONOMIA 002277, BANCO DE LA REPÚBLICA.
- Jan J.J. Groen & Frank R. Kleibergen, 1999.
"Likelihood-Based Cointegration Analysis in Panels of Vector Error Correction Models,"
Tinbergen Institute Discussion Papers
99-055/4, Tinbergen Institute.
- Groen, Jan J J & Kleibergen, Frank, 2003. "Likelihood-Based Cointegration Analysis in Panels of Vector Error-Correction Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 295-318, April.
- J.J.J. Groen & F. Kleibergen, 2001. "Likelihood-Based Cointegration Analysis in Panels of Vector Error Correction Models," WO Research Memoranda (discontinued) 646, Netherlands Central Bank, Research Department.
- Dairo Estrada, . "Efectos de las fusiones sobre el mercado financiero colombiano," Borradores de Economia 329, Banco de la Republica de Colombia.
- Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
- Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
- Raquel Bernal, 2002.
"Monetary Policy Rules In Colombia,"
003251, UNIVERSIDAD DE LOS ANDES-CEDE.
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
- Alessandro Rebucci & Marco A Espinosa-Vega, 2003. "Retail Bank Interest Rate Pass-Through," IMF Working Papers 03/112, International Monetary Fund.
- Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Camilo Millán).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.