Evidence of Incomplete Monetary Policy Transmission in a Non Competitive Banking Sector: The Case of Costa Rica

Jose Pablo Barquero-Romero (), Luis Alfredo Mendoza-Fernández () and Kerry Loaiza-Marín ()
Additional contact information
Jose Pablo Barquero-Romero: Department of Economic Research, Central Bank of Costa Rica
Luis Alfredo Mendoza-Fernández: Department of Economic Research, Central Bank of Costa Rica
Kerry Loaiza-Marín: Department of Economic Research, Central Bank of Costa Rica

No 2104, Documentos de Trabajo from Banco Central de Costa Rica

Abstract: In a country that adopted inflation targeting like Costa Rica, estimating the pass-through of the policy rate to banking retail rates is fundamental. We take into account imperfect competition, degree of dollarization, asymmetric regulation and whether banks are state or private to delimit the monetary policy rate (TPM) effectiveness. We generalize a Cournot-type competition model to allow for adjustment costs and use loan and deposit micro-data to estimate the magnitude and speed of the pass-through. We find important pass-through asymmetries due to market power, regulatory asymmetries, and degree of dollarization, all of which lower pass-through. Our evidence shows that the pass-through has increased relative to previous studies. ***Resumen: En un país con metas de inflación como Costa Rica, la estimación del traspaso de la tasa de política monetaria a las tasas ofrecidas por los bancos comerciales es fundamental. Tomar en cuenta la competencia imperfecta, la dolarización, la asimetría regulatoria y los tipos de bancos estatales y privados permite delimitar la efectividad de la Tasa de Política Monetaria (TPM). Con una generalización de un modelo de competencia tipo Cournot, con coste de ajuste y datos a nivel micro de préstamos y depósitos, se estima la magnitud y velocidad de traspaso. En general, existen importantes asimetrías en el traspaso debido al poder de mercado, asimetrías regulatorias y dolarización, todo lo cual merma la efectividad de la TPM. Mayor competencia, disminución de la dolarización, los costos de ajuste y de las asimetrías regulatorias mejoraría la fuerza y velocidad del traspaso. Por último, la evidencia muestra un traspaso más rápido respecto a estudios previos.

Keywords: Monetary policy rate; Non competitive banking sector; Tasa de política monetaria; sector bancario no competitivo (search for similar items in EconPapers)
JEL-codes: E43 E51 E52 L13 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2021-04
References: Add references at CitEc
Citations:

Published

Downloads: (external link)
https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/347 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:apk:doctra:2104

Access Statistics for this paper

More papers in Documentos de Trabajo from Banco Central de Costa Rica Contact information at EDIRC.
Bibliographic data for series maintained by Departamento de Investigación Económica ().