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Is central bank news good news for loan interest rates volatility?

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  • Chrysanthopoulou, Xakousti
  • Tsioutsios, Alexandros
  • Dimitriou, Dimitrios

Abstract

We develop a theoretical framework revealing a negative relationship between the volatility of loan interest rates and central bank transparency. Empirical analysis of G-7 economies supports this theoretical prediction. Additionally, this relationship is strengthening under tight macroprudential regulations.

Suggested Citation

  • Chrysanthopoulou, Xakousti & Tsioutsios, Alexandros & Dimitriou, Dimitrios, 2023. "Is central bank news good news for loan interest rates volatility?," Economics Letters, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004378
    DOI: 10.1016/j.econlet.2023.111411
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    References listed on IDEAS

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    1. Demertzis, Maria & Hughes Hallett, Andrew, 2007. "Central Bank transparency in theory and practice," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 760-789, December.
    2. Westelius, Niklas J., 2009. "Imperfect transparency and shifts in the central bank's output gap target," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 985-996, April.
    3. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2014. "Does central bank transparency affect stock market volatility?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 362-377.
    4. Nergiz Dincer & Barry Eichengreen & Petra Geraats, 2022. "Trends in Monetary Policy Transparency: Further Updates," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 331-348, March.
    5. Pires Tiberto, Bruno & Oliveira de Moraes, Claudio & Pio Corrêa, Paloma, 2020. "Does transparency of central banks communication affect credit market? Empirical evidence for advanced and emerging markets," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    6. Papadamou, Stephanos & Sidiropoulos, Moïse & Spyromitros, Eleftherios, 2015. "Central bank transparency and the interest rate channel: Evidence from emerging economies," Economic Modelling, Elsevier, vol. 48(C), pages 167-174.
    7. Gambacorta, Leonardo, 2008. "How do banks set interest rates?," European Economic Review, Elsevier, vol. 52(5), pages 792-819, July.
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    More about this item

    Keywords

    Central bank transparency; Loan interest rates volatility; Bank capital requirements; New Keynesian DSGE model; Panel and spectral analysis;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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