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Monetary and banking policy transmission through interest rates: an empirical application to the USA, Canada, the UK and the Eurozone

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Author Info

  • Yannis Panagopoulos
  • Ioanna Reziti
  • Aristotelis Spiliotis

Abstract

The main purpose of this paper is an examination of the pass-through interest rate transmission from the wholesale rates (central bank and/or money market rates) to the retail rates (deposit and lending rates) of the banking system. Knowledge of the transmission substantially helps us to calculate the pass-through interest rate margin or mark-up in the banking systems under examination (USA, Canada, the UK and the Eurozone). The selection of the wholesale interest rate is also an important part of this pass-through transmission framework because it is related to the money supply process and therefore the central bank's policy capabilities. In the empirical part, a Johansen (1988) cointegration based error-correction procedure (ECM-GE) is implemented for the wholesale interest rate selection. Then an LSE-Hendry general-to-specific model (GETS) is applied, for the revelation of the banking sector pass-through interest rate behaviour. In the empirical part, on the issue of the wholesale interest rate selection, the USA and the Eurozone seem to favour the Money Market rate while the UK and Canada favour the central bank policy rate. The results indicate two types of interest rate pass-through behaviour, with market structure implication - namely, the US and UK banking systems contrasted with Canada-Eurozone.

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Bibliographic Info

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

Volume (Year): 24 (2010)
Issue (Month): 2 ()
Pages: 119-136

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Handle: RePEc:taf:irapec:v:24:y:2010:i:2:p:119-136

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Related research

Keywords: interest rate pass-through behaviour; monetary policy transmission; asymmetries;

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Cited by:
  1. Jérôme Creel & Paul Hubert & Mathilde Viennot, 2013. "Assessing the interest rate and bank lending channels of ECB monetary policies," Documents de Travail de l'OFCE 2013-25, Observatoire Francais des Conjonctures Economiques (OFCE).
  2. A.H. Ahmad & Nusrate Aziz & Shahina Rummun, 2013. "Interest Rate Pass-Through in the UK: Has the Transmission Mechanism Changed During the Financial Crisis?," Economic Issues Journal Articles, Economic Issues, vol. 18(1), pages 17-38, March.

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