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Retail Bank Interest Rate Pass-Through

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Author Info

  • Alessandro Rebucci
  • Marco A Espinosa-Vega

Abstract

This paper investigates empirically the pass-through of money market interest rates to retail banking interest rates in Chile, the United States, Canada, Australia, New Zealand, and five European countries. Overall, Chile''s pass-through does not appear atypical. Based on a standard error-correction model, we find that, as in most countries considered, Chile''s measured pass-through is incomplete. But Chile''s pass-through is also faster than in many other countries considered and is comparable to that in the United States. While we find no significant evidence of asymmetry in Chile''s pass-through across states of the interest rate or monetary policy cycle, we do find some evidence of parameter instability, around the time of the Asian and Russian crises. However, we do not find evidence that the switch to a more flexible exchange rate regime in 1999 and the "nominalization" of Chile''s interest rate targets in 2001 have affected significantly the pass-through process.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/112.

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Length: 35
Date of creation: 01 May 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/112

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Related research

Keywords: Commercial banks; Interest rates; money market; banking; deposit rates; money market rate; money market rates; banking system; retail banking; retail bank; deposit rate; money market interest; money market interest rate; bank interest; bank deposits; bank rate; financial structure; bank lending; bank interest rate; money market interest rates; nominal interest rate; bank lending rates; bank rates; banking sector; government bond; financial market; banking industry; domestic capital; flexible exchange rate; domestic capital markets; government bond yields; bond; bank intermediation; bond yields; bank instruments; banking systems; bank interest rates; deposit interest; monetary authority; bank reports; country comparison; banking market; bank data; financial contracts; bank instrument; bank for international settlements; deposit interest rates; banking structure; international standards; financial reforms;

References

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  1. 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.
  2. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
  3. Claudio E. V. Borio & Wilhelm Fritz, 1995. "The response of short-term bank lending rates to policy rates: a cross-country perspective," BIS Working Papers 27, Bank for International Settlements.
  4. Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, International Monetary Fund.
  5. Sebastian Edwards, 1998. "Interest Rate Volatility, Capital Controls, and Contagion," NBER Working Papers 6756, National Bureau of Economic Research, Inc.
  6. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
  7. Ricardo J.Caballero, 2001. "Macroeconomic volatility in Latin America: a view and three case studies," Estudios de Economia, University of Chile, Department of Economics, vol. 28(1 Year 20), pages 5-52, June.
  8. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  9. 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.
  10. Ricardo J. Caballero, 2000. "Macroeconomic Volatility in Latin America: A View and Three Case Studies," IDB Publications 6863, Inter-American Development Bank.
  11. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
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