Interest Rate Pass-Through: Empirical Results for the Euro Area

2005 ◽  
Vol 6 (1) ◽  
pp. 37-78 ◽  
Author(s):  
Gabe J. de Bondt
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Vector Autoregressive ◽  
Empirical Results ◽  
Marginal Costs ◽  
Lending Rates ◽  
The Difference ◽  
Pass Through ◽  
The Interest Rate

Abstract This paper empirically examines the interest rate pass-through at the euro area level. The focus is on the pass-through of official interest rates, approximated by the overnight interest rate, to longer-term market interest rates, which, in turn, are a proxy for the marginal costs for banks to attract deposits or grant loans, and therefore passed through to retail bank interest rates. Empirical results, on the basis of a (vector) error-correction and vector autoregressive model, suggest that the pass-through of official interest to market interest rates is complete for money market interest rates up to three months, but not for market interest rates with longer maturities. Furthermore, the immediate pass-through of changes in market interest rates to bank deposit and lending rates is found to be at most 50%, whereas the final pass-through is typically found to be close to 100%, in particular for lending rates. Empirical results for a sub-sample starting in January 1999 show qualitatively similar findings and are supportive of a quicker interest rate pass-through since the introduction of the euro. It is shown that the difference between the adjustment speed of bank deposit and lending rates (typically around one versus three months since the common monetary policy) can to a large extent significantly be explained by credit risk considerations.

scholarly journals Asymmetric Interest Rate Transmission in an Inflation Targeting Framework: The Case of Colombia

2020 ◽  
Author(s):  
Arturo J. Galindo ◽  
Roberto Steiner
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Adjustment Process ◽  
Policy Tool ◽  
Linear Version ◽  
Lending Rates ◽  
Pass Through ◽  
The Interest Rate

After adopting an inflation targeting framework for monetary policy at the turn of the century, the Central Bank of Colombia started actively using the monetary policy interest rate as its key policy tool. In this regard, this paper examines the interest rate pass-through from the monetary policy rate to the retail rates in Colombia and explores asymmetries in the adjustment process within the framework of a non-linear version of the ARDL (NARDL) model developed by Shin et al. (2014). Our findings show that the policy rate plays a key role in determining deposit and lending retail rates but the nature of the pass-through varies across different types of lending products. In the case of lending rates, the pass-through is usually a full one, and takes around 12 months to be nearly complete. Our results capture an asymmetric positive pass-through in deposit rates and an upward rigidity in the lending rates of consumer and ordinary corporate loans, key segments of the credit market. These findings imply that most retail lending rates respond more to policy rate cuts than to hikes, indicating that financial intermediaries are more reluctant to raise interest rates than to decrease them following policy adjustments.

INTEREST RATE TARGETS AND SPECULATIVE ATTACKS ON PUBLIC DEBT

2018 ◽  
Vol 23 (07) ◽  
pp. 2698-2716 ◽  
Author(s):  
Pompeo Della Posta
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Euro Area ◽  
Public Debt ◽  
Nonlinear Behavior ◽  
Lender Of Last Resort ◽  
Speculative Attacks ◽  
The Interest Rate ◽  
Exchange Rate Target Zones ◽  
Primary Surplus

The application of exchange rate target zones modeling to interest rates allows interpreting the puzzles that emerged with the public debt euro area crisis, namely the nonlinear behavior of the interest rates and the fact that some stand-alone countries, not belonging to the euro area, have not been subject to speculative attacks in spite of equally large public debt-to-gross domestic product (GDP) ratios. As a matter of fact, this model shows that in the case of a noncredible upper threshold for the interest rate (that may be due to both the lack of room for increasing further the required government primary surplus and/or the absence of a monetary authority acting as a lender of last resort), the resulting public debt unsustainability determines an interest rate nonlinearity and makes the crisis possible for public debt levels that would be stable in the presence of a credible interest rate target.

Inside the Bank Box

2019 ◽  
pp. 368-405
Author(s):  
Leonardo Gambacorta ◽  
Paul Mizen
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Adjustment Costs ◽  
Bank Lending ◽  
Bank Capital ◽  
Bank Lending Channel ◽  
Lending Channel ◽  
Pass Through ◽  
The Interest Rate

Central bank policy operates first through financial markets and then through banks as they adjust their interest rates. This chapter discusses the transmission of policy in this first step of the monetary transmission mechanism, known as interest-rate pass-through. Historically, the focus of attention has been the interest-rate channel. We show the origins of this channel via a microfounded model of interest-rate setting by deposit-taking institutions that are Cournot oligopolists facing adjustment costs. We then examine other channels such as the bank lending channel and the bank capital channel and the role of central bank communications, signaling, and forward guidance over future interest rates. Each is shown to influence the setting of current short-term interest rates. The chapter closes with some issues for the future of pass-through in the transmission process.

scholarly journals Impact of bank competition on the interest rate pass-through in the euro area

2013 ◽  
Vol 45 (11) ◽  
pp. 1359-1380 ◽  
Author(s):  
Michiel van Leuvensteijn ◽  
Christoffer Kok Sørensen ◽  
Jacob A. Bikker ◽  
Adrian A.R.J.M. van Rixtel
Keyword(s):  
Interest Rate ◽  
Euro Area ◽  
Bank Competition ◽  
Pass Through ◽  
The Interest Rate

scholarly journals Pengaruh Faktor Internal Spesifik Bank Terhadap Interest Rate di Perusahaan Sektor Perbankan

2019 ◽  
Vol 19 (1) ◽  
pp. 16
Author(s):  
Ilma Meidira Eprianto ◽  
Catur Rahayu Martiningtiyas
Keyword(s):  
Interest Rate ◽  
Credit Risk ◽  
Interest Rates ◽  
Design Methodology ◽  
Operational Efficiency ◽  
Internal Factors ◽  
Specific Factors ◽  
The Difference ◽  
The Interest Rate ◽  
Positive Effect

<p><strong>Abstrak</strong></p><p><strong>Tujuan</strong> - Penelitian ini bertujuan untuk mengetahui pengaruh faktor spesifik internal bank terhadap <em>interest rate</em>.</p><p><strong>Desain/Metodologi/Pendekatan</strong>  - Regresi data panel berganda yang digunakan  untuk mengukur pengaruh faktor spesifik internal bank seperti <em>liquidity</em>, <em>operational efficiency</em>, <em>credit risk</em>, <em>capitalization</em>, dan <em>lending out ratio</em> terhadap interest rate</p><p><strong>Hasil</strong> – Penelitian ini menemukan bahwa <em>efficiency</em> dan <em>credit</em> <em>risk</em> memiliki pengaruh positif yang signifikan terhadap <em>interest rate </em>sedangkan <em>liquidity</em>, <em>capitalization</em> dan <em>lending out ratio </em>tidak berpengaruh terhadap <em>interest rate</em>.</p><p><strong>Keterbatasan/Nilai </strong>– Pengukuran <em>interest rate</em> tidak menggunakan suku bunga sbi tetapi perhitungan selisih antara suku bunga pinjaman dan suku bunga deposito.</p><p><strong> </strong></p><p><strong>Abstract</strong></p><p><strong>Proposed</strong> - This study aims to determine the effect of bank's specific internal factors on interest rates.</p><p><strong>Design/Methodology/Approach</strong>  - Mutiple panel data was used to analyse bank internal specific factors, namely liquidity, operational efficiency, credit risk, capitalization, and lending out ratio to the interest rate.</p><p><strong>Result</strong>  – The results of this study indicate that efficiency and credit risk have a significant positive effect on interest rates while liquidity but capitalization and lending out ratio do not affect the interest rate</p><p><strong>Novelty/Value</strong> - Interest rate measurement does not use the SBI interest rate but calculates the difference between the loan interest rate and the deposit rate.</p>

scholarly journals COMPARISON OF THE PASS-THROUGH SPEED MODELS OF DIFFERENT MARKETS: AN EMPIRICAL STUDY OF THE MARKETS OF MAINLAND CHINA AND TAIWAN

2020 ◽  
Author(s):  
Chi Ming Ho ◽  
Wu Yih Lin
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Mainland China ◽  
Rate Sensitivity ◽  
Interest Rate Spread ◽  
Spread Model ◽  
Pass Through ◽  
Loan Interest Rates ◽  
The Interest Rate

This paper adopted the Boone Indicator, developed by Boone et al. (2008) and Van Leuvensteijn et al. (2011; 2013), to investigate the influence of different pass-through spread models in the competition among banks in emerging markets. With the market share of banks as a dependent variable and marginal cost as an independent variable, this paper probed into the competition among banks regarding the loan market to determine whether competition on the loan interest rates of banks affected the pass-through of monetary policy-related interest rates. After analyzing approximately 5,657 entries of records of the banking industries in Taiwan and mainland China, this paper reached three significant conclusions: 1) the Boone Indicator Model pointed out that, competition in the banking market of mainland China was more intense than that of Taiwan; 2) empirical research based on the Interest Rate Spread Model indicated that the spread of mainland China was lower than that of Taiwan; 3) the Passthrough Speed Model implied that, the interest rate sensitivity of the market of mainland China was higher than that of the Taiwan market. The above results indicate that the influence of monetary policy pass-through on the interest rate of the market in mainland China is faster than in Taiwan.  

scholarly journals Nonlinear interest rate-setting behaviour of German commercial banks

2019 ◽  
Vol 24 (3) ◽  
Author(s):  
Ludwig Heinzelmann ◽  
Martin Missong
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Commercial Banks ◽  
Smooth Transition ◽  
Bank Management ◽  
Management Perspective ◽  
Policy Measures ◽  
Pass Through ◽  
The Interest Rate ◽  
Effectiveness Of Monetary Policy

AbstractWe quantitatively analyse the interest rate-setting behaviour of German commercial banks during the period 2003–2014, using nonlinear (smooth transition) cointegration approaches. Our empirical results reveal principles applied by commercial banks in (re-)gaining margins in the aftermath of the financial crisis. We substantiate our findings using economic arguments from a bank management perspective. As our study contributes to a better understanding of the pass-through mechanism from market to commercial banks’ customer interest rates, the results will also be relevant to meaningful assessments of the effectiveness of monetary policy measures.

scholarly journals Impact of Bank Competition on the Interest Rate Pass-Through in the Euro Area

2008 ◽  
Author(s):  
Michiel van Leuvensteijn ◽  
Christoffer Kok ◽  
Jacob Antoon Bikker ◽  
Adrian A.R.J.M. <!>van Rixtel
Keyword(s):  
Interest Rate ◽  
Euro Area ◽  
Bank Competition ◽  
Pass Through ◽  
The Interest Rate

The effect of negative policy rates on the interest-rate pass-through mechanism in the eurozone

2019 ◽  
Vol 7 (2) ◽  
pp. 247-262 ◽  
Author(s):  
Yannis Panagopoulos ◽  
Ekaterini Tsouma
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Money Market ◽  
Negative Interest Rates ◽  
Time Period ◽  
Pass Through ◽  
The Interest Rate ◽  
The Impact ◽  
The Relationship

This paper examines the impact of the June 2014 switch to negative interest rates (NIRs) by the European Central Bank (ECB) on the operation of the eurozone interest-rate pass-through (IRPT) mechanism. We focus on the relationship between major central-bank policy rates and selected money-market rates. That link is identified as the first stage of the IRPT mechanism and its dynamics are analysed using Granger causality and cointegration techniques for the time period January 2000–June 2017. Our empirical findings indicate a feedback relationship between the ECB policy and the money-market rates in the period prior to June 2014, but that relationship is non-operative when considering only the period of NIRs.

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