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Nonlinear interest rate-setting behaviour of German commercial banks

Author

Listed:
  • Heinzelmann Ludwig

    (PwC Strategy & (Germany) GmbH, Friedrichstraße 14, 70174 Stuttgart, Germany)

  • Missong Martin

    (University of Bremen, Faculty of Business Studies and Economics, Enrique-Schmidt-Str. 1, 28359 Bremen, Germany)

Abstract

We quantitatively analyse the interest rate-setting behaviour of German commercial banks during the period 2003–2014, using nonlinear (smooth transition) cointegration approaches. Our empirical results reveal principles applied by commercial banks in (re-)gaining margins in the aftermath of the financial crisis. We substantiate our findings using economic arguments from a bank management perspective. As our study contributes to a better understanding of the pass-through mechanism from market to commercial banks’ customer interest rates, the results will also be relevant to meaningful assessments of the effectiveness of monetary policy measures.

Suggested Citation

  • Heinzelmann Ludwig & Missong Martin, 2020. "Nonlinear interest rate-setting behaviour of German commercial banks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(3), pages 1-28, June.
    • Handle: RePEc:bpj:sndecm:v:24:y:2020:i:3:p:28:n:2
    DOI: 10.1515/snde-2017-0103
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    More about this item

    Keywords

    banking; financial crisis; interest rate pass-through; interest rate-setting; smooth transition regression models;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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