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Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence from Eastern European Countries

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  • Su, Chi Wei

    (Department of International Trade, Tamkang University; Department of Finance, Xiamen University; Taipei, Taiwan. Phone: +886-4-22920677. Address: No.151, Yingzhuan Rd., Danshui Town, Taipei County 25137, Taiwan (R.O.C.))

  • Chang, Hsu Ling

    (Department of Accounting and Information, Ling Tung University; Department of Finance, Xiamen University; Taipei, Taiwan.)

Abstract

This study carries out an examination of the potential non-linear cointegration between the lending and deposit rates of eight Eastern European countries using the threshold models by Enders and Granger (1998) and Enders and Siklos (2001). Based upon our adoption in this study of the threshold error-correction model (TECM), we find solid evidence of an asymmetric price transmission effect between the lending and deposit rates. Thus, our results reveal that there are indeed such long-run non-linear cointegration relationships between the lending and deposit rates in these Eastern European countries. Furthermore, we go on to successfully capture the dynamic adjustment of the spread.

Suggested Citation

  • Su, Chi Wei & Chang, Hsu Ling, 2010. "Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence from Eastern European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 165-175, July.
    • Handle: RePEc:rjr:romjef:v::y:2010:i:2:p:165-175
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    More about this item

    Keywords

    Lending-Deposit Rates Spread; Threshold Model; Threshold Error- Correction Model (TECM);
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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