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Lending rate stickiness and monetary transmission mechanism: the case of Canada and the United States

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  • Bakhtiar Moazzami
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    Abstract

    This paper examines the short-run and long-run impacts of changes in money market rates on lending rates in Canada and the US. This is done using an error-correction modelling framework, which distinguishes short-term impacts from long-run or full equilibrium effects. It is found that lending rates in the US have been stickier than those in Canada. However, the US lending rate rigidity, measured by the impact multiplier, has decreased in recent years. In contrast, Canada's lending rate has become stickier during the 1990s. The differences in adjustment speed between the two countries are attributed to the structure of their financial systems.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/096031099331989
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    Bibliographic Info

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

    Volume (Year): 9 (1999)
    Issue (Month): 6 ()
    Pages: 533-538

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    Handle: RePEc:taf:apfiec:v:9:y:1999:i:6:p:533-538

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    Cited by:
    1. Zulkhibri, Muhamed, 2012. "Policy rate pass-through and the adjustment of retail interest rates: Empirical evidence from Malaysian financial institutions," Journal of Asian Economics, Elsevier, vol. 23(4), pages 409-422.
    2. Heinemann, Friedrich & Schüler, Martin, 2002. "Integration benefits on EU retail credit markets: evidence from interest rate pass-through," ZEW Discussion Papers 02-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Claudia Kwapil & Johann Scharler, 2006. "Limited Pass-Through from Policy to Retail Interest Rates: Empirical Evidence and Macroeconomic Implications," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 26–36.
    4. Ciccarone, Giuseppe & Giuli, Francesco & Liberati, Danilo, 2014. "Incomplete interest rate pass-through under credit and labor market frictions," Economic Modelling, Elsevier, vol. 36(C), pages 645-657.
    5. Burkhard Raunig & Johann Scharler, 2009. "Money Market Uncertainty and Retail Interest Rate Fluctuations: A Cross-Country Comparison," German Economic Review, Verein für Socialpolitik, vol. 10, pages 176-192, 05.
    6. Sastry, D. V. S. & Singh, Balwant & Bhattacharya, Kaushik, 2009. "Stability of Lending Rate Stickiness: A Case Study of India," MPRA Paper 26570, University Library of Munich, Germany.
    7. Scharler, Johann, 2008. "Do bank-based financial systems reduce macroeconomic volatility by smoothing interest rates?," Journal of Macroeconomics, Elsevier, vol. 30(3), pages 1207-1221, September.
    8. Solange Berstein J. & Rodrigo Fuentes S., 2003. "From Policy Rates to Bank Lending Rates: The Chilean Banking Industry," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 6(1), pages 49-67, April.
    9. Claudia Kwapil & Johann Scharler, 2009. "Expected Monetary Policy and the Dynamics of Bank Lending Rates," Working Papers 149, Oesterreichische Nationalbank (Austrian Central Bank).
    10. Kwapil, Claudia & Scharler, Johann, 2010. "Interest rate pass-through, monetary policy rules and macroeconomic stability," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 236-251, March.
    11. Sylvia Kaufmann & Johann Scharler, 2007. "Financial Systems and the Cost Channel Transmission of Monetary Policy Shocks," Working Papers 116, Oesterreichische Nationalbank (Austrian Central Bank).
    12. Kok, Christoffer & Werner, Thomas, 2006. "Bank interest rate pass-through in the euro area: a cross country comparison," Working Paper Series 0580, European Central Bank.

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