The pass-through effect of interest rates and monetary policy in Peru: 1995–2004

This study examines the pass-through effect of the interbank interest rate on market interest rates in Peru from 1995 to 2004, assessing its relationship with monetary policy. Three hypotheses are proposed: that the magnitude of the pass-through effect is less than one, that the speed of adjustment has changed since the announcement of the interest rate corridor in 2001, and that this adjustment is asymmetric. Using a nonlinear and asymmetric error correction model, monthly interest rate data for loans and deposits are analyzed. The findings show that, indeed, the pass-through effect is not complete, with average values of 1.2 for loan rates and 0.6 for deposit rates following the implementation of the inflation targeting (MEI) regime. In addition, the speed of adjustment in interest rates has increased following the announcement of the corridor, indicating greater responsiveness to changes in the interbank rate, particularly in lending rates. These results suggest that monetary policy has strengthened transmission through the interest rate channel. (Abstract and audio: Department of Economic Publications)