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Does Foreign Bank Entry Affect Monetary Policy Effectiveness?: Exploring the Interest Rate Pass-Through Channel

Author

Listed:
  • Sasidaran Gopalan

    (Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

  • Ramikishen S. Rajan

    (School of Policy, Government and International Affairs (SPGIA), George Mason University)

Abstract

This paper explores the impact of foreign bank entry on interest-rate-pass-through for a panel of 57 emerging and developing economies over 1995-2009. The paper tests for possible thresholds in terms of foreign bank presence that differentially impact interest-rate passthrough. The empirical results suggest that there are strong threshold effects in that foreign bank entry tends to enhance interest rate pass-through only in countries with greater degree of foreign bank presence compared to those with limited entry. The paper also finds that when foreign bank entry leads to greater banking concentration, it significantly lowers the extent of interest rate transmission.

Suggested Citation

  • Sasidaran Gopalan & Ramikishen S. Rajan, 2015. "Does Foreign Bank Entry Affect Monetary Policy Effectiveness?: Exploring the Interest Rate Pass-Through Channel," HKUST IEMS Working Paper Series 2015-06, HKUST Institute for Emerging Market Studies, revised Feb 2015.
    • Handle: RePEc:hku:wpaper:201506
    as

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    References listed on IDEAS

    as
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    Cited by:

    1. Perera, Anil & Wickramanayake, J., 2016. "Determinants of commercial bank retail interest rate adjustments: Evidence from a panel data model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 45(C), pages 1-20.
    2. Sasidaran Gopalan, 2015. "Financial Liberalization and Foreign Bank Entry in Emerging and Developing Economies: What Does the Literature Tell Us?," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-25.
    3. Sasidaran Gopalan, 2015. "Foreign Banks in Emerging Markets: Advantage or Impediment?," HKUST IEMS Thought Leadership Brief Series 2015-04, HKUST Institute for Emerging Market Studies, revised Jan 2015.

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    More about this item

    Keywords

    foreign bank entry; financial liberalization; financial inclusion; financial development; banking concentration; interest rates;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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