Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions

38 Pages Posted: 22 Feb 2013

See all articles by Christian Saborowski

Christian Saborowski

International Monetary Fund (IMF)

Sebastian Weber

International Monetary Fund (IMF)

Date Written: January 2013

Abstract

We employ a structural panel VAR model with interaction terms to identify determinants of effective transmission from central bank policy rates to retail lending rates in a large country sample. The framework allows deriving country specific pass-through estimates broken down into the contributions of structural country characteristics and policies. The findings suggest that industrial economies tend to enjoy a higher pass-through largely on account of their more flexible exchange rate regimes and their more developed financial systems. The average pass-through in our sample increased from 30 to 60 percent between 2003 and 2008, mainly due to positive risk sentiment, rising inflation and increasingly diversified banking sectors. The crisis reversed this trend partly as banks increased precautionary liquidity holdings, non-performing loans proliferated and inflation moderated.

Keywords: Banking Sector, Banking sector, Economic models, Interest Rate Pass-Through, Interest rates, Monetary Policy Transmission, Monetary policy, Monetary transmission mechanism

JEL Classification: F40, E30, E60

Suggested Citation

Saborowski, Christian and Weber, Sebastian, Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions (January 2013). IMF Working Paper No. 13/23, Available at SSRN: https://ssrn.com/abstract=2222487

Christian Saborowski (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Sebastian Weber

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
368
PlumX Metrics