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Expected monetary policy and the dynamics of bank lending rates

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  • Kwapil, Claudia
  • Scharler, Johann

Abstract

In this paper we explore empirically to what extent expected monetary policy matters for the dynamics of bank lending rates in the U.S. and in the U.K. Based on endogenously determined break points, we document a number of structural breaks in the relationship between expected policy and retail interest rates. We find that banks have increasingly behaved in a forward-looking fashion by taking expected changes in monetary policy rates into account. Overall, our results provide support for the hypothesis that monetary policy has become more effective by successfully influencing private sector expectations.

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  • Kwapil, Claudia & Scharler, Johann, 2013. "Expected monetary policy and the dynamics of bank lending rates," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 542-551.
  • Handle: RePEc:eee:reveco:v:27:y:2013:i:c:p:542-551 DOI: 10.1016/j.iref.2013.01.010
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    Cited by:

    1. Gospodinov, Nikolay & Jamali, Ibrahim, 2014. "The Response of Stock Market Volatility to Futures-Based Measures of Monetary Policy Shocks," FRB Atlanta Working Paper 2014-14, Federal Reserve Bank of Atlanta.
    2. Tsai, Chun-Li, 2014. "The effects of monetary policy on stock returns: Financing constraints and “informative” and “uninformative” FOMC statements," International Review of Economics & Finance, Elsevier, pages 273-290.
    3. Gospodinov, Nikolay & Jamali, Ibrahim, 2015. "The response of stock market volatility to futures-based measures of monetary policy shocks," International Review of Economics & Finance, Elsevier, pages 42-54.
    4. Ansgar Belke & Andreas Freytag & Johannes Keil & Friedrich Schneider, 2012. "The Credibility of Monetary Policy Announcements - Empirical Evidence for OECD Countries since the 1960s," Global Financial Markets Working Paper Series 2012-34, Friedrich-Schiller-University Jena.
    5. Tondl, Gabriele, 2016. "Interest rates, corporate lending and growth in the Euro Area," Department of Economics Working Paper Series 5085, WU Vienna University of Economics and Business.
    6. Almeida, Fernanda Dantas & Divino, José Angelo, 2015. "Determinants of the banking spread in the Brazilian economy: The role of micro and macroeconomic factors," International Review of Economics & Finance, Elsevier, pages 29-39.
    7. Belke, Ansgar & Freytag, Andreas & Keil, Jonas & Schneider, Friedrich, 2014. "The credibility of monetary policy announcements: Empirical evidence for OECD countries since the 1960s," International Review of Economics & Finance, Elsevier, pages 217-227.
    8. Gabriele Tondl, 2016. "Interest rates, corporate lending and growth in the Euro Area," Department of Economics Working Papers wuwp227, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    Monetary policy; Expectations; Interest rate pass-through;

    JEL classification:

    • 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

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