Does Foreign Bank Entry Affect Monetary Policy Effectiveness?: Exploring the Interest Rate Pass-Through Channel

Sasidaran Gopalan and Ramkishen Rajan

No 2015-06, HKUST IEMS Working Paper Series from HKUST Institute for Emerging Market Studies

Abstract: This paper explores the impact of foreign bank entry on interest-rate-pass-through for a panel of 57 emerging and developing economies over 1995-2009. The paper tests for possible thresholds in terms of foreign bank presence that differentially impact interest-rate passthrough. The empirical results suggest that there are strong threshold effects in that foreign bank entry tends to enhance interest rate pass-through only in countries with greater degree of foreign bank presence compared to those with limited entry. The paper also finds that when foreign bank entry leads to greater banking concentration, it significantly lowers the extent of interest rate transmission.

Keywords: foreign bank entry; financial liberalization; financial inclusion; financial development; banking concentration; interest rates (search for similar items in EconPapers)
JEL-codes: F21 G00 G21 O16 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-02, Revised 2015-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hku:wpaper:201506

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