Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions

By Christian Saborowski, Sebastian Weber

January 25, 2013

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Format: Chicago

Christian Saborowski, and Sebastian Weber. Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions, (USA: International Monetary Fund, 2013) accessed July 20, 2025

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We employ a structural panel VAR model with interaction terms to identify determinants of effective transmission from central bank policy rates to retail lending rates in a large country sample. The framework allows deriving country specific pass-through estimates broken down into the contributions of structural country characteristics and policies. The findings suggest that industrial economies tend to enjoy a higher pass-through largely on account of their more flexible exchange rate regimes and their more developed financial systems. The average pass-through in our sample increased from 30 to 60 percent between 2003 and 2008, mainly due to positive risk sentiment, rising inflation and increasingly diversified banking sectors. The crisis reversed this trend partly as banks increased precautionary liquidity holdings, non-performing loans proliferated and inflation moderated.

Subject: Asset and liability management, Central bank policy rate, Commercial banks, Exchange rate arrangements, Exchange rate flexibility, Financial institutions, Financial services, Foreign exchange, Liquidity indicators, Liquidity management

Keywords: Banking Sector, Central America, Central Asia, Central bank policy rate, Commercial banks, East Asia, Eastern Europe, Exchange rate arrangements, Exchange rate flexibility, Exchange rate flexibility, Interest Rate Pass-Through, Interest rate transmission, Lending rate, Liquidity management, Long-run pass-through, Monetary Policy Transmission, Money market, Money market rate, Pass-through decomposition, Pass-through estimate, Policy rate, Policy rate shock, South America, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/023
Stock No:

WPIEA2013023
ISBN:

9781475525717
ISSN:

1018-5941

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