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Interest Rate Pass-Through in the Dominican Republic, Francesco Grigoli, José Mota

Contributor
Abstract
A well-functioning monetary transmission mechanism is critical for monetary policy. As the Dominican Republic recently adopted an inflation targeting regime, it is even more relevant to guarantee that changes in the monetary policy rates are quickly and fully reflected in retail rates, to eventually 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. We find evidence of complete pass-through to retail rates, confirming the effectiveness of the monetary policy transmission mechanism. However, our results also suggest a faster pass-through to lending rates than to deposit rates and asymmetric adjustments of short-term rates, as deposit rates respond faster to policy rate cuts and lending rates respond faster to policy rate hikes. Measures to enhance competition in the financial system could help to achieve a symmetric adjustment of retail rates
Table Of Contents
Cover -- Contents -- Abstract -- I. Introduction -- II. The Pass-Through in the Dominican Republic -- A. Theoretical Contributions -- B. Characteristics of the Dominican Financial System and Empirical Evidence -- III. Empirical Strategy -- IV. Results -- A. Baseline -- B. Asymmetries -- C. Simulation -- V. Conclusions -- Tables -- 1. Literature for the Dominican Republic -- 2. ECM Estimation for Retail Rates -- 3. ADL Model Estimation for Government Bonds -- 4. Asymmetric M-TAR ECM Estimation for Retail Rates -- A1. Unit Root, ADF Test -- A2. Cointegration, Engle-Granger Test -- A3. Cointegration, TAR and M-TAR Tests with Threshold Set to Zero -- A4. Cointegration, TAR and M-TAR Tests with Endogenously Determined Threshold -- Figures -- 1. Monetary Policy and Retail Rates -- 2. Banks' Margins -- 3. Timing of One-Percentage Point Change in the Monetary Policy Rate -- References
Language
eng
Literary Form
non fiction
Physical Description
1 online resource (29 pages)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781513596440

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