Bahamas and Barbados: empirical evidence of interest rate pass-through

Jackman, Mahalia N.
Boamah, Daniel O.
Mamingi, Nlandu

2014-01-02T18:45:34Z

LC/G.2487-P

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This paper uses an error correction model to investigate empiricallythe effectiveness of central bank interest rate policy in influencingcommercial banks' lending rate behaviour in Barbados and the Bahamasusing quarterly data for the period January 1995-April 2007. For Barbados,the study finds that the reaction of commercial bank lending rates tochanges in the central bank's policy rate is sticky in the short run, butfully complete in the long run. On average, it takes about four to sixquarters for the full effect of changes in the central bank policy rate tobe transmitted to the economy via adjustments. For the Bahamas, thereaction of commercial bank lending rates to changes in the central bankpolicy rate is fully complete in the short run and the long run, owing to alow adjustment cost coupled with the use of moral suasion.

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CENTRAL BANKS; MONETARY POLICY; COMMERCIAL BANKS; ECONOMIC ANALYSIS; BANK LOANS; POLITICA MONETARIA; BANCOS CENTRALES; INTEREST RATES; ANALISIS ECONOMICO; BANCOS COMERCIALES; PRESTAMOS BANCARIOS; TASAS DE INTERES;