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The pass-through of the monetary policy rate into lending rates in Mexico

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  • Alessandro Maravalle
  • Alberto González Pandiella

Abstract

This paper estimates the pass-through of monetary policy rates into five lending rates in Mexico using auto regressive distributed lags models (ARDLs) and taking into account several financial market characteristics. Results show that the pass-through of monetary policy into the average short-term lending rate is full and fast, as it takes around 3 months to be fully transmitted. However, the pass-through is heterogeneous across credit markets, being especially weak in the mortgage and automotive credit markets. A higher market concentration in the credit sector is associated with a higher level of the corresponding lending rate. Other financial market characteristics, such as the measure of bank profitability and the ratio of capital to bank assets, are also found to affect the long-run level of one or more lending rates. Higher competition in credit markets and reducing asymmetric information would improve the transmission of monetary policy and contribute to reduce the level of lending rates.

Suggested Citation

  • Alessandro Maravalle & Alberto González Pandiella, 2022. "The pass-through of the monetary policy rate into lending rates in Mexico," OECD Economics Department Working Papers 1734, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1734-en
    DOI: 10.1787/acf23bc6-en
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    Cited by:

    1. Kleanthis Natsiopoulos & Nickolaos G. Tzeremes, 2024. "ARDL: An R Package for ARDL Models and Cointegration," Computational Economics, Springer;Society for Computational Economics, vol. 64(3), pages 1757-1773, September.

    More about this item

    Keywords

    bank lending rates; interest rate pass-through; monetary policy; transmission mechanism;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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