Interest Rate Pass-Through in Colombia: a Micro-Banking Perspective

Abstract

Banks and other credit institutions are key players in the transmission of monetary policy, especially when the responses of deposit and loan interest rates to shifts in policy rates are among the most important channels. This pass-through depends on the conditions prevailing in the loan and deposit markets, which are, in turn, affected by macroeconomic factors. Hence, when setting their policy, monetary authorities must take into account those conditions and the behavior of banks. This paper shows this point using a micro-banking model and presents supporting empirical evidence based on monthly data for Colombia between 1999 and 2006.

Effectiveness of monetary policy: evidence from Turkey

“…This outcome is consistent with Frisancho-Marischal and Howell (2009), which finds a positive relationship between pass-through and LIBOR. On the other hand, 2008-2014 results provide a contradictory outcome, which is consistent with Betancourt et al (2008), which finds a negative relationship between LIBOR and pass-through. Industrial production growth, on the other hand, reduces pass-through.…”

“…Term structure is an indicator of future growth of economy. Frisancho-Marischal and Howells (2009) finds a positive relationship between LIBOR and interest rate pass-through, but Betancourt et al (2008) find a negative relationship. There is not a consensus about the effect of LIBOR in the literature.…”

“…Effectiveness of transmission channels require a competitive banking sector, welldeveloped stock and credit markets, a fully liquid financial sector, totally independent central bank, maximum quality of institutional and regulatory environment, a floating exchange rate regime, full market development and effective secondary market for government securities (Cotarelli and Kourelis, 1994;Cottarelli et al, 1995;Cecchetti, 1999;Ehrmann et al, 2001;De Bondt (2002); Sorensen and Werner, 2006;Leiderman et al, 2006;Ito and Sato, 2006;Betancourt et al (2008); Frisancho-Marischal and Howells (2009) ;Saborowski and Weber, 2013;Leroy and Lucotte, 2015). Following this long recipe of the earlier literature, we use proxies representing these factors as interaction variables.…”

The pass-through effect of interest rate and asymmetric adjustment in Indonesia

“…However, the effect remains sluggish for short-term interest rates. In the same vein, Betancourt et al (2008) discovered that the degree of the interest rate pass-through for deposit rates was incomplete to the change of policy rate in the short run while in the long run, the interest rate pass-through was found to be complete. Havranek et al (2016) indicated that before financial crisis, the pass-through effect was nearly perfect in the long run, but it turned weak after the crisis.…”

Cambios de la Tasa de Política y su Efecto en la Estructura a Plazo de Colombia

“…En Colombia, el paso (pass-through) de las tasas de política del Banco de la República (BR) a las tasas de mercado ha sido una preocupación constante (véanse, por ejemplo, Julio 2001;Huertas, Jalil, Olarte y Romero, 2005;Amaya, 2006;Melo y Becerra, 2006;y Betancourt, Vargas y Rodríguez, 2006). No obstante, los trabajos realizados hasta ahora no han estudiado, bien sea por razones de interés empírico o de su aproximación teórica, dos aspectos importantes.…”