Monetary Policy Transmission in the Eastern Caribbean Currency Union

Alla Myrvoda and Julien Reynaud

No 2018/070, IMF Working Papers from International Monetary Fund

Abstract: This paper empirically investigates international and domestic monetary policy transmission mechanisms in the Eastern Caribbean Currency Union (ECCU). We assess interest rate pass-through of both the U.S. policy rate and the ECCU minimum saving deposit rate (MSR) into domestic interest rates through the interest rate channel. While economic theory suggests that the international pass-through should be high in small open economies with fixed exchange rates and open capital accounts, our findings, based on regression analysis, point to a low long-run pass-through coefficient of the U.S. interest rate. The domestic transmission channel, however, is found to operate through changes in the MSR. The results hold for different interest rates (deposit and lending) and are supported by survey-based findings.

Keywords: WP; discount rate; lending rate; banking sector; exchange rate; monetary policy transmission; interest rate pass-through; ECCU; pass-through assessment; transmission mechanism; interest rate datum; interest rate data; interest rate stickiness; estimation result; pass-through estimation result; interest rate gap channel; transmission pass-through; interest rate pass-through estimation result; policy rate change; Deposit rates; Central bank policy rate; Commercial banks; Discount rates; Global; Caribbean (search for similar items in EconPapers)
Pages: 30
Date: 2018-03-29
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Citations: View citations in EconPapers (2)

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