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Bank and Official Interest Rates: How Do They Interact over Time?

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Author Info

  • G. C. Lim

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • Sarantis Tsiaplias

    (KPMG, Melbourne)

  • C. L. Chua

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper implements a procedure to evaluate time-varying bank interest rate adjustments over a sample period which includes changes in industry structure, market and credit conditions and varying episodes of monetary policy. The model draws attention to the pivotal role of official rates and provides estimates of the equilibrium policy rate. The misalignment of actual official rates and their changing sensitivity to banking conditions is identified. Results are also provided for the variation in intermediation margins and pass-throughs as well as the interactions between lending and borrowing behaviour over the years, including behaviour before, during and after the global financial crisis. The case studies are the US and Australian banking systems.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2010n04.

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Length: 26 pages
Date of creation: Apr 2010
Date of revision:
Handle: RePEc:iae:iaewps:wp2010n04

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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Keywords: bank interest rates; time-varying asymmetric adjustments; monetary interest rate policy;

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Cited by:
  1. Valadkhani, Abbas, 2013. "The pricing behaviour of Australian banks and building societies in the residential mortgage market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 133-151.
  2. Lou, Weifang & Yin, Xiangkang, 2014. "The impact of the global financial crisis on mortgage pricing and credit supply," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 336-363.

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