Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia
After adopting an inflation targeting framework for monetary policy at the turn of the twenty-first century, Banco de la República, the Central Bank of Colombia, started actively using the monetary policy interest rate as its key policy tool. This paper examines the interest rate pass-through from t...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Elsevier
2022-09-01
|
| Series: | Latin American Journal of Central Banking |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2666143822000230 |
| _version_ | 1811210641442078720 |
|---|---|
| author | Arturo J. Galindo Roberto Steiner |
| author_facet | Arturo J. Galindo Roberto Steiner |
| author_sort | Arturo J. Galindo |
| collection | DOAJ |
| description | After adopting an inflation targeting framework for monetary policy at the turn of the twenty-first century, Banco de la República, the Central Bank of Colombia, started actively using the monetary policy interest rate as its key policy tool. This paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a nonlinear version of the autoregressive distributed lag (ARDL) and the non-linear autoregressive distributed lag (NARDL) models developed by Shin, Yo, and Greenwood-Nimmo (2014). The findings show that the policy rate plays a key role in determining deposit and lending retail rates, but the nature of the pass-through varies across different types of products. In the case of lending rates, the pass-through is nearly complete and takes around 12 months to be nearly complete. The results capture an asymmetric pass-through in deposit rates—i.e., greater when the policy rate is increased than when it is reduced—and an upward rigidity in the lending rates of consumer and ordinary corporate loans, implying that major retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments. Results are robust to the inclusion of additional regressors. |
| first_indexed | 2024-04-12T04:58:13Z |
| format | Article |
| id | doaj.art-828c9de8ae5c45d7856d0f2b9f2f7f7c |
| institution | Directory Open Access Journal |
| issn | 2666-1438 |
| language | English |
| last_indexed | 2024-04-12T04:58:13Z |
| publishDate | 2022-09-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Latin American Journal of Central Banking |
| spelling | doaj.art-828c9de8ae5c45d7856d0f2b9f2f7f7c2022-12-22T03:47:03ZengElsevierLatin American Journal of Central Banking2666-14382022-09-0133100069Asymmetric interest rate transmission in an inflation-targeting framework: The case of ColombiaArturo J. Galindo0Roberto Steiner1Inter-American Development Bank, United States; Corresponding authors.Banco de la República, ColombiaAfter adopting an inflation targeting framework for monetary policy at the turn of the twenty-first century, Banco de la República, the Central Bank of Colombia, started actively using the monetary policy interest rate as its key policy tool. This paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a nonlinear version of the autoregressive distributed lag (ARDL) and the non-linear autoregressive distributed lag (NARDL) models developed by Shin, Yo, and Greenwood-Nimmo (2014). The findings show that the policy rate plays a key role in determining deposit and lending retail rates, but the nature of the pass-through varies across different types of products. In the case of lending rates, the pass-through is nearly complete and takes around 12 months to be nearly complete. The results capture an asymmetric pass-through in deposit rates—i.e., greater when the policy rate is increased than when it is reduced—and an upward rigidity in the lending rates of consumer and ordinary corporate loans, implying that major retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments. Results are robust to the inclusion of additional regressors.http://www.sciencedirect.com/science/article/pii/S2666143822000230E4E5G2 |
| spellingShingle | Arturo J. Galindo Roberto Steiner Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia Latin American Journal of Central Banking E4 E5 G2 |
| title | Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia |
| title_full | Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia |
| title_fullStr | Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia |
| title_full_unstemmed | Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia |
| title_short | Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia |
| title_sort | asymmetric interest rate transmission in an inflation targeting framework the case of colombia |
| topic | E4 E5 G2 |
| url | http://www.sciencedirect.com/science/article/pii/S2666143822000230 |
| work_keys_str_mv | AT arturojgalindo asymmetricinterestratetransmissioninaninflationtargetingframeworkthecaseofcolombia AT robertosteiner asymmetricinterestratetransmissioninaninflationtargetingframeworkthecaseofcolombia |