Observed and expected interest rate pass-through under remarkably high market rates

Jose Angelo Divino and Carlos Haraguchi
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Carlos Haraguchi: Central Bank of Brazil

Empirical Economics, 2023, vol. 65, issue 1, No 8, 203-246

Abstract: Abstract This paper investigates the pass-through from observed and expected policy interest rates to the remarkably high lending rates in the Brazilian economy, accounting for financial-institution specific characteristics, borrower types, asymmetric adjustment and persistence in loan rates. We use a unique and non-public dataset with expected variables identified by professional forecasters and apply a fixed-effects approach to alternative specifications as robustness checks. Financial institutions correctly forecast the next target level of the policy rate and anticipate adjustments in their loan rates. There is evidence of over-proportional and positively asymmetric pass-through to loans with higher interest rate margins, implying a positive correlation between degrees of pass-through and spreads across persistent lending rates. These findings contribute to explain why loan interest rates are so high in the Brazilian economy.

Keywords: Interest rate pass-through; Asymmetry; Lending rates; Monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00181-022-02335-0

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