The Response of Short-Term Bank Lending Rates to Policy Rates: A Cross-Country Perspective

Abstract

This paper compares the responses of short-term bank lending rates to policy rates in a sample of 12 industrialised countries and seeks to relate them to characteristics of the financial system and of the policy environment. The degree of competition in the loan market and the clarity of the signal associated with changes in policy rates appear as some of the most relevant factors affecting the pass-through. There is evidence of mark-up pricing on average funding costs but not much supporting asymmetric responses with respect to increases and decreases in the policy rate. The paper is part of a broader BIS cross-country study on the impact of financial structure on the transmission mechanism.