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Is There Lending Rate Stickiness in the Chilean Banking Industry?

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  • Solange Berstein
  • Rodrigo Fuentes

Abstract

This paper provides new empirical evidence on macroeconomic policies and results in Latin America and the Caribbean (LAC), based on recent data for the region and the world at large. Our results show that: (i) both monetary and fiscal policies are counter- (pro-) cyclical when credibility is high (low), (ii) the accuracy of inflation-targeting central banks in meeting their targets rises with central bank independence and declines with country risk, (iii) intermediate exchange-rate regimes became less persistent than hard pegs and floats after the Asian crisis, (iv) exchange rate regimes do matter for inflation and growth – and regime transitions have significant output and inflation consequences (v) international differences in productivity growth do not track well real exchange rate (RER) trends and RER misalignments are not resolved by supply reforms that raise growth, (vi) LAC’s financial integration with international capital markets has increased significantly during the last decade, (vii) adverse foreign shocks explain a major part of LAC’s growth performance during the 1990s, and (viii) the composition of foreign capital flows does matter for growth.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 218.

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Date of creation: Aug 2003
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Handle: RePEc:chb:bcchwp:218

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References

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  1. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-29, May.
  2. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  4. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
  5. Arellano, M. & Honore, B., 2000. "Panel Data Models: Some Recent Developments," Papers 0016, Centro de Estudios Monetarios Y Financieros-.
  6. Rómulo Chumacero, 2001. "Testing for unit roots using economics," Working Papers Central Bank of Chile 102, Central Bank of Chile.
  7. Corvoisier, Sandrine & Gropp, Reint, 2002. "Bank concentration and retail interest rates," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2155-2189, November.
  8. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  9. Carlo Cottarelli & Giovanni Ferri & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy: A Case Study," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 670-700, September.
  10. Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 23, Board of Governors of the Federal Reserve System (U.S.).
  11. Sack, Brian & Wieland, Volker, 2000. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Journal of Economics and Business, Elsevier, vol. 52(1-2), pages 205-228.
  12. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  13. Rotemberg, Julio J & Saloner, Garth, 1987. "The Relative Rigidity of Monopoly Pricing," American Economic Review, American Economic Association, vol. 77(5), pages 917-26, December.
  14. Peter Winker, 1999. "Sluggish adjustment of interest rates and credit rationing: an application of unit root testing and error correction modelling," Applied Economics, Taylor & Francis Journals, vol. 31(3), pages 267-277.
  15. 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.
  16. Arellano, Manuel, 1989. "A note on the Anderson-Hsiao estimator for panel data," Economics Letters, Elsevier, vol. 31(4), pages 337-341, December.
  17. Giovanni Ferri & Carlo Cottarelli & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy," IMF Working Papers 95/38, International Monetary Fund.
  18. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
  19. Bagliano, Fabio C. & Dalmazzo, Alberto & Marini, Giancarlo, 2000. "Bank competition and ECB's monetary policy," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 967-983, June.
  20. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Citations

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Cited by:
  1. Marco A. Espinosa-Vega & Alessandro Rebucci, 2003. "Retail Bank Interest Rate Pass-Through: Is Chile Atypical?," Working Papers Central Bank of Chile 221, Central Bank of Chile.
  2. J. Sebastián Becerra & Luis Ceballos & Felipe Córdova & Michael Pedersen, 2009. "Pass-through of Large Changes in Monetary Policy Rate – Evidence for Chile," Working Papers Central Bank of Chile 522, Central Bank of Chile.
  3. Carlos Andrés Amaya, . "Interest Rate Setting and the Colombian Monetary Transmission Mechanism," Borradores de Economia 352, Banco de la Republica de Colombia.
  4. Carlos Andrés Amaya G., 2005. "Interest Rate Setting And The Colombian Monetary Transmission Mechanism," BORRADORES DE ECONOMIA 002910, BANCO DE LA REPÚBLICA.
  5. Rocío Betancourt & Hernando Vargas & Norberto Rodríguez Niño, 2006. "Interest Rate Pass-Through In Colombia: A Micro- Banking Perspective," BORRADORES DE ECONOMIA 002909, BANCO DE LA REPÚBLICA.
  6. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Central & Eastern Europe: Gliding on a Wind of Change," William Davidson Institute Working Papers Series wp850, William Davidson Institute at the University of Michigan.
  7. Carlos Andrés Amaya, 2006. "Interest Rate Setting and the Colombian Monetary Transmission Mechanism," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, BANCO DE LA REPÚBLICA - ESPE.
  8. David Archer, 2006. "Implications of recent changes in banking for the conduct of monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 123-51 Bank for International Settlements.
  9. José De Gregorio & Alejandro Jara & Cristina Betancour, 2006. "Improving the Banking System: The Chilean Experience," Economic Policy Papers Central Bank of Chile, Central Bank of Chile 16, Central Bank of Chile.
  10. Zulkhibri, Muhamed, 2012. "Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions," Journal of Asian Economics, Elsevier, vol. 23(4), pages 409-422.
  11. Sastry, D. V. S. & Singh, Balwant & Bhattacharya, Kaushik, 2009. "Stability of Lending Rate Stickiness: A Case Study of India," MPRA Paper 26570, University Library of Munich, Germany.
  12. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de Espa�a Working Papers 0539, Banco de Espa�a.
  13. Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission Mechanism in Transition Economies: Surveying the Surveyable," MNB Working Papers, Magyar Nemzeti Bank (the central bank of Hungary) 2006/5, Magyar Nemzeti Bank (the central bank of Hungary).
  14. Fabrizio Coricelli & Balázs Égert & Ronald MacDonald, 2006. "Monetary Transmission in Central and Eastern Europe: Gliding on a Wind of Change," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 44-87.
  15. Solange Berstein & Rodrigo Fuentes, 2005. "Concentration and Price Rigidity: Evidence for the Deposit Market in Chile," Working Papers Central Bank of Chile 311, Central Bank of Chile.
  16. J. Rodrigo Fuentes & Verónica Mies, 2007. "Changes in Monetary Policy Conduct and Their Effects on Banking Spreads," Working Papers Central Bank of Chile 428, Central Bank of Chile.
  17. Roseline N. Misati & Esman M. Nyamongo & Anne W. Kamau, 2011. "Interest rate pass-through in Kenya," International Journal of Development Issues, Emerald Group Publishing, vol. 10(2), pages 170-182, July.

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