Deposit insurance and effectiveness of monetary policy

Abstract

This article discusses the impact of deposit insurance on the effectiveness of monetary policy. We apply the technique suggested by Zeileis et al. (2010) and use the data of Taiwan to investigate whether there are structural changes in the effectiveness of monetary policy. The empirical results show there are several break points in the interbank interest rate regression and the bank loan regression. The insignificance of estimated coefficients on open market operations in some segmented regressions implies the ineffectiveness of monetary policy during the period of full deposit guarantees.

Keywords:

• deposit insurance
• monetary policy
• structural change
• effectiveness

JEL Classification:

• E52
• E58

Notes

¹ All the information is available on the website of CDIC (http://www.cdic.gov.tw).