Interest Rate Pass-Through in the Dominican Republic
IMF Working Papers, December 10, 2015
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- Interest Rate Pass-Through in the Dominican Republic
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Bibliographic details
- Authors: Francesco Grigoli, José M. Mota
- Published: December 10, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513584393.001
Summary
- A well-functioning monetary transmission mechanism is critical for monetary policy.
- As the Dominican Republic recently adopted an inflation targeting regime, it is important that changes in the monetary policy rates are quickly and fully reflected in retail rates to influence aggregate demand and inflation.
- This paper estimates the interest rate pass-through of the monetary policy rate to retail rates and explores asymmetries in the adjustment.
Key findings
- Evidence of complete pass-through to retail rates, confirming the effectiveness of the monetary policy transmission mechanism.
- Faster pass-through to lending rates than to deposit rates.
- Asymmetric adjustments of short-term rates:
- Deposit rates respond faster to policy rate cuts.
- Lending rates respond faster to policy rate hikes.
Policy implications and recommendations
- Measures to enhance competition in the financial system could help to achieve a symmetric adjustment of retail rates.