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On the dynamics of lending and deposit interest rates in emerging markets: a non-linear approach

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Author Info
Ana María Iregui ()
Costas Milas ()
Jesús Otero ()

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Abstract

This paper studies the dynamics of lending and deposit rates in four emerging markets in Latin America: Argentina, Chile, Colombia and Mexico. The dynamics of interest rates exhibit a regime-switching behavior, where the transition from one regime to the other is controlled by the interest rate spread difference. The first regime, which is characterized by negative deviations of the interest rate spread relative to an estimated threshold, occurs during periods of financial liberalization. The second regime, which is characterized by positive deviations of the interest rate spread relative to the estimated threshold, occurs during periods of financial inefficiency and increasing government intervention. By capturing changing policy regimes from government intervention to a more financially liberalized environment and vice versa, the non-linear specification proves superior to the linear one. ********************************************************************** Este trabajo estudia el comportamiento dinámico de las tasas de interés de captación y colocación en cuatro mercados emergentes en Latinoamérica: Argentina, Chile, Colombia y México. La dinámica de las tasas de interés muestra un comportamiento de cambio de régimen, donde la transición de un régimen a otro, es controlada por el diferencial entre las tasas. El primer régimen, caracterizado por desviaciones negativas del diferencial entre las tasas con respecto a un umbral estimado, ocurre durante periodos de liberalización financiera. El segundo, caracterizado por desviaciones positivas, ocurre durante periodos de ineficiencia financiera y creciente intervención. La especificación no lineal resulta mejor que la lineal en la medida en que permite capturar cambios de régimen.

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Paper provided by UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA in its series BORRADORES DE INVESTIGACIÓN with number 003297.

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Length: 39
Date of creation: 02 Nov 2001
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Handle: RePEc:col:000091:003297

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  1. repec:fth:inadeb:320 is not listed on IDEAS
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  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
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  7. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De. [Downloadable!] (restricted)
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  9. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank. [Downloadable!]
  10. Lim, G C, 2001. "Bank Interest Rate Adjustments: Are They Asymmetric?," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 135-47, June. [Downloadable!] (restricted)
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  13. Barry Scholnick, 1996. "Retail Interest Rate Rigidity after Financial Liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 433-37, April. [Downloadable!] (restricted)
  14. Barajas, Adolfo & Steiner, Roberto & Salazar, Natalia, 2000. "The impact of liberalization and foreign investment in Colombia's financial sector," Journal of Development Economics, Elsevier, vol. 63(1), pages 157-196, October. [Downloadable!] (restricted)
  15. Anderson, Heather M, 1997. "Transaction Costs and Non-linear Adjustment towards Equilibrium in the US Treasury Bill Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(4), pages 465-84, November.
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