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Are there asymmetries in the response of bank interest rates to monetary shocks?

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Author Info

  • Leonardo Gambacorta
  • S. Iannotti

Abstract

This article examines the velocity and asymmetry of the response of bank interest rates to monetary policy shocks. Using an asymmetric vector error correction model, it analyses the pass-through of changes in money market rates to retail bank interest rates in Italy in the period 1985-2002. The main results of the article are: (1) the speed of adjustment of bank interest rates to monetary policy changes increased significantly after the introduction of the 1993 Consolidated Law on Banking; (2) interest rate adjustment in response to positive and negative shocks is asymmetric in the short run, but not in the long run; (3) banks adjust their loan (deposit) rate faster during periods of monetary tightening (easing); (4) this asymmetry almost vanished since the 1990s.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840600707241
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Bibliographic Info

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

Volume (Year): 39 (2007)
Issue (Month): 19 ()
Pages: 2503-2517

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Handle: RePEc:taf:applec:v:39:y:2007:i:19:p:2503-2517

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Web page: http://www.tandfonline.com/RAEC20

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Citations

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Cited by:
  1. Columba, F. & Gambacorta, L. & Mistrulli, P.E., 2009. "Mutual Guarantee Institutions and Small Business Finance," Discussion Paper 2009-32 S, Tilburg University, Center for Economic Research.
  2. 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.
  3. Leonardo Gambacorta, 2004. "How Do Banks Set Interest Rates?," NBER Working Papers 10295, National Bureau of Economic Research, Inc.
  4. Marotta, Giuseppe, 2009. "Structural breaks in the lending interest rate pass-through and the euro," Economic Modelling, Elsevier, vol. 26(1), pages 191-205, January.
  5. Riccardo Bonci & Francesco Columba, 2007. "The Effects Of Monetary Policy Shocks On Flow Of Funds:The Italian Case," Money Macro and Finance (MMF) Research Group Conference 2006 75, Money Macro and Finance Research Group.
  6. van Leuvensteijn, Michiel & Bikker, Jacob A. & Van Rixtel, Adrian & Kok, Christoffer, 2007. "A new approach to measuring competition in the loan markets of the euro area," Working Paper Series 0768, European Central Bank.
  7. Nakhoda, Aadil, 2013. "Bank competition and export diversification," MPRA Paper 50774, University Library of Munich, Germany.
  8. Giuseppe Marotta, 2006. "Structural breaks in the interest rate pass-through and the euro. A cross-country study in the euro area and the UK," Heterogeneity and monetary policy 0612, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
  9. R. Bonci & F. Columba, 2008. "Monetary policy effects: new evidence from the Italian flow-of-funds," Applied Economics, Taylor & Francis Journals, vol. 40(21), pages 2803-2818.
  10. Iva Cecchin, 2011. "Mortgage Rate Pass-Through in Switzerland," Working Papers 2011-08, Swiss National Bank.

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