Asymmetric Interest Rate Transmission in an Inflation Targeting Framework: The Case of Colombia

Arturo Galindo and Roberto Steiner

Borradores de Economia from Banco de la Republica de Colombia

Abstract: After adopting an inflation targeting framework for monetary policy at the turn of the century, the Central Bank of Colombia started actively using the monetary policy interest rate as its key policy tool. In this regard, 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 ARDL (NARDL) model developed by Shin et al. (2014). Our findings show that the policy rate plays a key role in determining deposit and lending retail rates but the nature of the passthrough varies across different types of lending products. In the case of lending rates, the pass-through is usually a full one, and takes around 12 months to be nearly complete. Our results capture an asymmetric positive pass-through in deposit rates and an upward rigidity in the lending rates of consumer and ordinary corporate loans, key segments of the credit market. These findings imply that most 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.. **** RESUMEN: El uso de la tasa de referencia de la política monetaria se convirtió en un elemento central para la formulación de política monetaria por parte del Banco de la República al adoptar un esquema de inflación objetivo a comienzos del siglo. Este trabajo estudia el canal de transmisión de dicha tasa a las tasas que perciben los usuarios del sistema financiero y explora posibles asimetrías utilizando una versión no lineal de los modelos ARDL (NARDL) desarrollada por Shin et al. (2014). Nuestras estimaciones muestran que la tasa de política juega un papel central en la determinación de tasas de interés de depósitos y préstamos y que su transmisión varía entre productos financieros. En el caso de tasas de préstamos, la transmisión es usualmente completa y tarda alrededor de doce meses en completarse. Los resultados sugieren que la mayoría de las tasas de interés de préstamos responden más fuertemente a reducciones en la tasa de política que a incrementos, lo que indica que los intermediarios financieros son menos propensos a subir tasas que a bajarlas tras ajustes de política. Por el contrario, las tasas de interés de los depósitos responden más a las alzas que a las reducciones en la tasa de interés de política.

Keywords: Monetary policy; Interest rate pass-through; Asymmetry; Nonlinear autoregressive distributed lag (NARDL); Colombia; Política monetaria; pass-through de tasas de interés; Asimetría; Rezago distribuido autorregresivo no-lineal (NARDL); Colombia (search for similar items in EconPapers)
JEL-codes: E4 E5 G2 (search for similar items in EconPapers)
Pages: 23
Date: 2020-10
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://doi.org/10.32468/be.1138

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Journal Article: Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1138

DOI: 10.32468/be.1138

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