The Policy Interest-Rate Pass-Through in Central America
IMF Working Papers, October 1, 2011
Source details
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- The Policy Interest-Rate Pass-Through in Central America
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Bibliographic details
- Authors: Alejandro Carrion-Menendez, Florencia Frantischek
- Published: October 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463923228.001
Overview and scope
- Authors: Alejandro Carrion-Menendez, Florencia Frantischek
- Publication date: October 1, 2011
- Publication series: Working Paper No. 2011/240
- Pages: 21
- Volume: 2011
- Issue: 240
- DOI: https://doi.org/10.5089/9781463923228.001
- ISBN: 9781463923228
- ISSN: 1018-5941
Core findings
- The interest-rate transmission mechanism (pass-through of the policy rate to market rates) is generally weaker and slower in Central America (CADR) than in the LA6 (the countries selected as benchmarks).
- Factors examined as potential drivers of the weaker and slower pass-through include:
- degrees of financial dollarization
- exchange rate flexibility
- bank concentration
- financial sector development
- fiscal dominance
Empirical approach
- Analytical method: panel data analysis
- Comparative focus: CADR central banks with independent monetary policies versus LA6 benchmark countries
- Policy instrument studied: policy interest rates used to signal monetary policy stances, often in the context of adopting or transitioning to inflation targeting regimes
Policy-relevant implications and recommendations
- Strengthen transmission mechanism by increasing exchange rate flexibility.
- Over time, strengthen transmission mechanism by adopting measures to:
- reduce financial dollarization
- develop the financial sector
- reduce bank concentration
Subject areas and keywords
- Subject: Bank credit; Banking; Central bank policy rate; Deposit rates; Exchange rate flexibility; Financial services; Foreign exchange; Inflation targeting; Monetary policy; Monetary policy frameworks
- Keywords: bank concentration; Central America; Central bank policy rate; Deposit rates; exchange rate; Exchange rate flexibility; financial sector; Inflation targeting; interest rate; interest rate pass-through; interest rate transmission mechanism; interest-rate transmission; Latin America; lending pass-through Cummulative response; Monetary policy; Monetary policy frameworks; policy rate; rate; WP
IMF Working Paper No. 2011/240, Alejandro Carrion-Menendez and Florencia Frantischek, October 1, 2011.