Retail Bank Interest Rate Pass-Through: Is Chile Atypical?

36 Pages Posted: 29 Jan 2006

See all articles by Marco A. Espinosa-Vega

Marco A. Espinosa-Vega

International Monetary Fund (IMF)

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: May 2003

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 Chiles interest rate targets in 2001 have affected significantly the pass-through process.

Keywords: Interest Rates, Pass-Through, Central Bank

JEL Classification: E43, E52

Suggested Citation

Espinosa-Vega, Marco A. and Rebucci, Alessandro, Retail Bank Interest Rate Pass-Through: Is Chile Atypical? (May 2003). IMF Working Paper No. 03/112, Available at SSRN: https://ssrn.com/abstract=879188

Marco A. Espinosa-Vega (Contact Author)

International Monetary Fund (IMF) ( email )

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Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

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HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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United Kingdom

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