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Monetary Policy and Lending Interest Rates: evidence from Mexico

Author

Listed:
  • Pablo Cotler

    (Department of Economics - Universidad Iberoamericana Ciudad de Mexico)

  • Rodrigo Carrillo

    (Department of Economics, Universidad Iberoamericana Ciudad de Mexico)

Abstract

Whenever the Central Bank modifies its interest rate, it is generally thought that lending interest rates for new loans will follow in a similar fashion independently of the loan size. In this paper we examine this hypothesis by looking at what happened to interest rates for personal and payroll loans of different size when the Central Bank of Mexico varied its reference rate. Using an autoregressive model with distributed lags that incorporates asymmetric effects, we find three major results. First, increases in the reference rate do not have the expected impact on the interest rates for personal and payroll loans. Second, the inclusion of control variables may help explain what appears to be an asymmetric response by banks to changes in the reference rate. Third, variations in the central bank rate may have some distributional impact.

Suggested Citation

  • Pablo Cotler & Rodrigo Carrillo, 2022. "Monetary Policy and Lending Interest Rates: evidence from Mexico," Working Paper Series Sobre México 2022003, Sobre México. Temas en economía.
    • Handle: RePEc:smx:wpaper:2022003
    as

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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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