How Does Foreign Bank Entry Affect Monetary Policy Effectiveness? : Exploring the Interest Rate Pass-Through Channel

Published on: 2014-09-27

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Abstract

Foreign bank penetration in emerging and developing economies (EMDEs) across the world has been growing in importance since the 1990s. The average share of foreign bank assets in the total banking system of all EMDEs across the world doubled from about 22 to 44 percent between 1995 and 2009. One of the important issues in the literature examining the various implications of foreign bank entry pertains to the lending behavior of foreign banks in response to domestic monetary policy shocks and how they specifically affect the monetary policy transmission in a country. This paper explores the impact of foreign bank entry on interest rate pass-through from policy to lending rates for a panel of 57 EMDEs over the period 1995-2009. The paper also specifically tests for possible identifiable thresholds in terms of foreign bank presence that differentially impact interest rate pass-through. The empirical results suggest that there are strong threshold effects in that foreign bank entry tends to enhance interest-rate pass-through only in countries with greater degree of foreign bank presence compared to those with limited entry.

About the Speaker

Sasidaran Gopalan received his PhD in Public Policy in August 2014 from the School of Policy, Government and International Affairs (SPGIA) at George Mason University (GMU), USA. His fields of specialization are international finance and development, with a specific emphasis on emerging market economies. His dissertation examined the monetary and financial dimensions of foreign bank entry in emerging and developing economies. He obtained his MSc in Economics from Madras School of Economics (Chennai, India) in 2007 and BA in Economics from Loyola College (Chennai, India) in 2005.

Prior to his PhD, he spent a year as a Research Associate at the Indian Institute of Management Bangalore (IIMB) (2007-08) working on various policy issues related to trade in services in Asia. After his stint at IIMB, he moved to the Institute of South Asian Studies (ISAS) at the National University of Singapore (NUS) for two years (2008-2010) where he undertook research on international economic policy issues concerning Asia.

He has co-authored a book published by Oxford University Press (India) entitled “Crisis, Capital Flows and FDI in Emerging Asia” and has published several academic articles in refereed national and international journals as well as contributed to book chapters in edited volumes along with various op-eds.

His current research focuses on the various implications of financial openness and capital flows on financial development and integration in emerging Asia.

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Presentation slides
More about Dr Gopalan

[IEMS Thought Leadership Brief] Foreign Banks in Emerging Markets: Advantage or Impediment? by Sasidaran Gopalan

[IEMS Academic Seminar] The Impact of Financial Institutions on Property Rights – and the Impact of Institutions on Financial Volatility in Transition Economies by Christopher Hartwell, CASE (Warsaw)

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