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Effects of the Interest Rate and Reserve Requirement Ratio on Bank Risk in China: A Panel Smooth Transition Regression Approach

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  • Zhongyuan Geng
  • Xue Zhai

Abstract

This paper applies the Panel Smooth Transition Regression (PSTR) model to simulate the effects of the interest rate and reserve requirement ratio on bank risk in China. The results reveal the nonlinearity embedded in the interest rate, reserve requirement ratio, and bank risk nexus. Both the interest rate and reserve requirement ratio exert a positive impact on bank risk for the low regime and a negative impact for the high regime. The interest rate performs a significant effect while the reserve requirement ratio shows an insignificant effect on bank risk on a statistical basis for both the high and low regimes.

Suggested Citation

  • Zhongyuan Geng & Xue Zhai, 2015. "Effects of the Interest Rate and Reserve Requirement Ratio on Bank Risk in China: A Panel Smooth Transition Regression Approach," Discrete Dynamics in Nature and Society, Hindawi, vol. 2015, pages 1-8, July.
    • Handle: RePEc:hin:jnddns:571384
    DOI: 10.1155/2015/571384
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