When Do Costa Rica National Banks Respond to Reserve Requirement Changes?

Abstract

The process of changing reserve requirements in Costa Rica is a three step process. First the central bank makes the decision to change reserve requirements. Several days to several weeks later, the change is announced in the official newspaper. The actual reserve requirement change takes place from several weeks to several months later. Previous studies have limited their analysis to an examination of the decision and the announcement dates. The research shows that Costa Rica national banks do not respond to reserve requirement change announcements or reserve requirement change decisions. In this paper we examine the extent to which Costa Rica national banks respond to reserve requirement changes on the effective day of the reserve requirement change. We find evidence that Costa Rica national banks change their interest rate spreads on the effective day.

Keywords: Reserve Requirements, Banking, Costa Rica, Interest Rates

JEL Classification: E42, E58