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Cross-country panel analysis justifying tighter control over short-term interest rates

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  • Serdavaa, Batkhurel

Abstract

These days, many central banks have achieved a high degree of control over their operational targets, and the short-term interest rates have been tightly stabilized around their target rates. The paper investigates whether such an achievement at the operational level can improve the monetary policy effectiveness, focusing on the policy rate pass-through to the bank lending rate. In doing so, the paper first shows that the policy rate pass-through to the bank lending rate improves as the interbank market interest rate is contained in a narrower band by developing a minimal static model for banks. Then, the paper empirically tests the theoretical relationship using cross-country panel data. The results consistently suggest that the credible operational framework under which the central bank consistently achieves its operational target interest rate is essential to keeping the interest rate channel effective.

Suggested Citation

  • Serdavaa, Batkhurel, 2025. "Cross-country panel analysis justifying tighter control over short-term interest rates," International Review of Economics & Finance, Elsevier, vol. 98(C).
    • Handle: RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000310
    DOI: 10.1016/j.iref.2025.103868
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    More about this item

    Keywords

    Interest rate channel; Interest rate pass-through; Monetary policy; Monetary policy operations; Cross-country panel data;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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