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Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data

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  • Karlo Kauko

    (Bank of Finland)

Abstract

This paper presents econometric analyses on the determination of bank deposit and lending rates using longitudinal Finnish data. Interest rate pass-through is very strong, possibly complete, in the case of lending rates; in the case of deposit rates the pass-through is far from complete, even in the long term. The monetary union has benefited customers by decreasing the average rate on new loans. Credit and interest rate risk premiums are clearly observable in banks' lending rates. The impact of money market rates on loan stock rates seems to have been non-linear; no obvious explanation for this phenomenon has been found.

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File URL: http://128.118.178.162/eps/fin/papers/0508/0508020.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0508020.

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Length: 48 pages
Date of creation: 31 Aug 2005
Date of revision:
Handle: RePEc:wpa:wuwpfi:0508020

Note: Type of Document - pdf; pages: 48. Bank of Finland Research Discussion Papers 9/2005
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Web page: http://128.118.178.162

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Keywords: G21; E43; E44;

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  1. Angbazo, Lazarus, 1997. "Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 55-87, January.
  2. Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-31, February.
  3. Leonardo Gambacorta, 2005. "How Do Banks Set Interest Rates?," Temi di discussione (Economic working papers) 542, Bank of Italy, Economic Research and International Relations Area.
  4. Hannan, Timothy H. & Prager, Robin A., 2004. "The competitive implications of multimarket bank branching," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1889-1914, August.
  5. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
  6. Rodrigo Fuentes & Solange Berstein, 2004. "Concentration and Price Rigidity: Evidence for the deposit Market in Chile," Econometric Society 2004 Latin American Meetings 67, Econometric Society.
  7. Sander, Harald & Kleimeier, Stefanie, 2004. "Convergence in euro-zone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 461-492, April.
  8. Paul Mizen & Boris Hofmann, 2002. "Base rate pass-through: evidence from banks' and building societies' retail rates," Bank of England working papers 170, Bank of England.
  9. Rosen, Richard J., 2007. "Banking market conditions and deposit interest rates," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3862-3884, December.
  10. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
  11. Canhoto, Ana, 2004. "Portuguese banking: A structural model of competition in the deposits market," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 41-63.
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