European Parliament Library

The Policy Interest-Rate Pass-Through in Central America, Stephanie Medina Cas, Alejandro Carrion-Menendez, Florencia Frantischek

Several Central American (CADR) central banks with independent monetary policies have adopted policy interest rates as their main instrument to signal their monetary policy stances, often in the context of adopting or transitioning to inflation targeting regimes. This paper finds that the interest-rate transmission mechanism, or the pass-through of the policy rate to market rates, is generally weaker and slower in CADR than in the LA6, the countries selected as benchmarks. A variety of potential factors behind this finding are examined, including the degrees of financial dollarization, exchange rate flexibility, bank concentration, financial sector development, and fiscal dominance. Through panel data analysis, the study suggests that the transmission mechanism can be strengthened by increasing exchange rate flexibility, and, over time, by adopting measures towards reducing financial dollarization, developing the financial sector, and reducing bank concentration
Table Of Contents
Cover Page; Title Page; Copyright Page; Abstract; Contents; I. Introduction; II. Determinants of Interest-Rate Transmission: Literature Review; III. Interest-Rate Transmission in CADR; A. Correlations of the Policy Rate with Market Rates; 1. Monetary and Exchange Rate Frameworks in CADR and LA6; 2. Short and Long-Term Correlations Between Policy Rate and Bank Lending/Deposit Rates; 1. Pass-Through of the Policy Rate to Market Rates in Latin America; 2. CADR + LA6: Policy to Lending Pass-through Cumulative Response Over Time; B. Interest-Rate Transmission: Empirical Evidence
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (37 p.)
Specific Material Designation
Form Of Item

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