Determinants of Interest Rate Pass-Through: Do Macroeconomic Conditions and Financial Market Structure Matter?

July 1, 2011

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Format: Chicago

Nikoloz Gigineishvili. Determinants of Interest Rate Pass-Through: Do Macroeconomic Conditions and Financial Market Structure Matter?, (USA: International Monetary Fund, 2011) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Numerous empirical studies have found that the strength of the interest rate pass-through varies markedly across countries and markets. The causes of such heterogeneity have attracted considerably less attention so far. Unlike other studies that mainly focus on small groups of mostly developed and emerging markets in the same region, this paper expands the cross-sectional coverage to 70 countries from all regions, including low income, emerging and developed countries. It uses a wide range of macroeconomic and financial market structure variables to uncover structural determinants of pass-through. The paper finds that per capita GDP and inflation have positive effects on pass-through, while market volatility has a negative effect. Among financial market variables exchange rate flexibility, credit quality, overhead costs, and banking competition were found to strengthen pass-through, whereas excess banking liquidity to impede it.

Subject: Banking, Credit, Financial institutions, Financial markets, Financial services, Inflation, Loans, Market interest rates, Money, Money markets, Prices

Keywords: Credit, Exchange regime, Inflation, Interest rate, Interest rate channel, Interest rate pass-through, Loans, Market interest rates, Middle East, Middle East and Central Asia, Monetary policy, Money market rate, Money markets, Pass-through, Pass-through coefficient, Transmission mechanism, Unit interest rate elasticity, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/176
Stock No:

WPIEA2011176
ISBN:

9781462312313
ISSN:

1018-5941

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