Monetary Policy Transmission in the Eastern Caribbean Currency Union
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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.
Series:
Working Paper No. 2018/070
Subject:
Banking Central bank policy rate Commercial banks Deposit rates Discount rates Financial crises Financial institutions Financial services
English
Publication Date:
March 29, 2018
ISBN/ISSN:
9781484348291/1018-5941
Stock No:
WPIEA2018070
Pages:
30
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