Monetary Policy Transmission in the Eastern Caribbean Currency Union

March 29, 2018

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Alla Myrvoda, and Julien Reynaud. Monetary Policy Transmission in the Eastern Caribbean Currency Union, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Banking, Central bank policy rate, Commercial banks, Deposit rates, Discount rates, Financial crises, Financial institutions, Financial services

Keywords: Banking sector, Caribbean, Central bank policy rate, Commercial banks, Deposit rates, Discount rate, Discount rates, ECCU, Estimation result, Exchange rate, Global, Interest rate data, Interest rate datum, Interest rate gap channel, Interest rate pass-through, Interest rate pass-through estimation result, Interest rate stickiness, Lending rate, Monetary policy transmission, Pass-through assessment, Pass-through estimation result, Policy rate change, Transmission mechanism, Transmission pass-through, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/070
Stock No:

WPIEA2018070
ISBN:

9781484348291
ISSN:

1018-5941

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