Pass-through from monetary policy to bank interest rates: A-symmetry analysis

This paper analyzes the effect of monetary policy in the credit market, by modeling the dynamics of banks’ interest rates relative to its equilibrium level. We estimate the banks’ equilibrium interest rates, which include latent spreads and/or specific margins. Additionally, we allow a gradual convergence to the target and asymmetric adjustment speeds, as it may be different for active and passive rates and it depends on whether these adjust to higher or lower levels as compared to the current one. The use of regimes based on the relative level of the rate to its objective has advantages over only differentiating between increases and decreases in the monetary policy rate (MPR), since it also recognizes changes in spreads, which exploit the heterogeneity of the banks and include the effects of specific factors. Using Chilean data from January 2004 to September 2019, we find that although there is a direct transmission of MPR on the banks’ interest rates, this is not immediate. In particular, we show that the adjustment of deposits rates to changes in the MPR is faster in a monetary easing, while, for commercial rates, banks adjust their rates more rapidly to a tightening. This result is consistent with international evidence, in particular for larger institutions, but this effect is diluted in a period of less than a year.