Microdata Evidence of Incomplete Monetary Policy Transmission in a Non Competitive Banking Sector: The Case of Costa Rica
Abstract
In a country that adopted inflation targeting like Costa Rica, estimating the pass-through of the policy rate to banking retail rates is fundamental. We take into account imperfect competition, degree of dollarization, asymmetric regulation and whether banks are state or private to delimit the monetary policy rate (TPM) effectiveness. We generalize a Cournot-type competition model to allow for adjustment costs, and use loan and deposit micro-data to estimate the magnitude and speed of the pass-through. We find important pass-through asymmetries due to market power, regulatory asymmetries, and degree of dollarization, all of which lower pass-through. Our evidence shows that the pass-through has increased relative to previous studies.
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