2003), “Is There Lending Rate Stickiness in the Chilean Banking Industry? Working Paper N°218

This paper studies the transmission of monetary policy in terms of the interest rate pass-through in the case of Chile. Specifically, we are interested in the response of the commercial bank lending rate to a money market interest rate movement. International evidence sug-gests that lending interest rates are somewhat sluggish to adjust to changes in the policy rate. This stickiness is generally related to lack of competition in the banking sector, capital flow restrictions, and volatility of the policy rate. One of the first comprehensive empirical studies on bank interest rate pass-through for monetary policy is Cottarelli and Kourelis (1994). They find important differences among countries: the estimated im-pact effects vary between 0.06 and 0.83, and the long-run effects range from 0.59 to 1.48, with an average of 0.97. Our estimates for the Chilean case are an impact of 0.81 and a long-run pass-through of 0.97 for nominal interest rates. Previous studies suggest that sluggish adjustment is associated with market conditions and regulation of the banking sector. In this paper, we use bank-level data to explore other factors that may influ-ence the degree of delay in market interest rate response to changes in the policy rate. The aim is to identify which characteristics ma