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Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina

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  • Alberto Humala

Abstract

The dynamic relationship between a money market (interbank) rate and different short-term lending rates is analysed by measuring the pass-through process between these rates in the Argentinean banking system. Neither linear single-equation modelling nor linear multi-equation systems capture efficiently this relationship. The presence of several episodes of financial crises alters the speed and degree of response to shocks in the interbank rate. Thus, a Markov switching VAR model shows that under normal financial conditions short-run stickiness is higher for those rates on loans with higher credit risk. But it also shows that when there is a high-volatility scenario, the pass-through increases considerably for all interest rates. The MSIAH(2)-VAR(1) identifies correctly periods of financial distress (in which regime switch occurs).

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 2 ()
Pages: 77-94

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:2:p:77-94

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Cited by:
  1. Eduardo Roca & Victor Wong & Gurudeo Tularam, 2010. "The Market Sensitivity of Australian Superannuation Socially Responsible Investment Funds. Evidence from a Markov Regime Switching Approach," Discussion Papers in Finance finance:201012, Griffith University, Department of Accounting, Finance and Economics.
  2. Ana-Maria Fuertes & Shelagh A. Heffernan, 2009. "Interest rate transmission in the UK: a comparative analysis across financial firms and products," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 45-63.
  3. David ARISTEI & Manuela Gallo, 2012. "Interest Rate Pass-Through in the Euro Area during the Financial Crisis: a Multivariate Regime-Switching Approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 107/2012, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  4. Arielle Beyaert & Juan Jose Perez-Castejon, 2009. "Markov-switching models, rational expectations and the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 399-412.

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