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Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina

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  • Alberto Humala

Abstract

The dynamic relationship between a money market (interbank) rate and different short-term lending rates is analysed by measuring the pass-through process between these rates in the Argentinean banking system. Neither linear single-equation modelling nor linear multi-equation systems capture efficiently this relationship. The presence of several episodes of financial crises alters the speed and degree of response to shocks in the interbank rate. Thus, a Markov switching VAR model shows that under normal financial conditions short-run stickiness is higher for those rates on loans with higher credit risk. But it also shows that when there is a high-volatility scenario, the pass-through increases considerably for all interest rates. The MSIAH(2)-VAR(1) identifies correctly periods of financial distress (in which regime switch occurs).

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  • Alberto Humala, 2005. "Interest rate pass-through and financial crises: do switching regimes matter? the case of Argentina," Applied Financial Economics, Taylor & Francis Journals, vol. 15(2), pages 77-94.
  • Handle: RePEc:taf:apfiec:v:15:y:2005:i:2:p:77-94
    DOI: 10.1080/0960310042000297908
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    Cited by:

    1. Eduardo Roca & Victor Wong, 2008. "An analysis of the sensitivity of Australian superannuation funds to market movements: a Markov regime switching approach," Applied Financial Economics, Taylor & Francis Journals, vol. 18(7), pages 583-597.
    2. Danilo Liberati, 2014. "An estimated DSGE model with search and matching frictions in the credit market," Temi di discussione (Economic working papers) 986, Bank of Italy, Economic Research and International Relations Area.
    3. Becker, Ralf & Osborn, Denise R. & Yildirim, Dilem, 2012. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Economic Modelling, Elsevier, vol. 29(6), pages 2504-2513.
    4. Arielle Beyaert & Juan Jose Perez-Castejon, 2009. "Markov-switching models, rational expectations and the term structure of interest rates," Applied Economics, Taylor & Francis Journals, vol. 41(3), pages 399-412.
    5. Aristei, David & Gallo, Manuela, 2014. "Interest rate pass-through in the Euro area during the financial crisis: A multivariate regime-switching approach," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 273-295.
    6. Eduardo Roca & Victor Wong & Gurudeo Tularam, 2010. "The Market Sensitivity of Australian Superannuation Socially Responsible Investment Funds. Evidence from a Markov Regime Switching Approach," Discussion Papers in Finance finance:201012, Griffith University, Department of Accounting, Finance and Economics.
    7. Hennecke, Peter, 2017. "Zinstransmission in der Niedrigzinsphase: Eine empirische Untersuchung des Zinskanals in Deutschland," Thuenen-Series of Applied Economic Theory 150, University of Rostock, Institute of Economics.
    8. repec:eee:joecas:v:17:y:2018:i:c:p:48-60 is not listed on IDEAS
    9. Hennecke, Peter, 2017. "The interest rate pass-through in the low interest rate environment: Evidence from Germany," Thuenen-Series of Applied Economic Theory 151, University of Rostock, Institute of Economics.
    10. Amarasekara, Chandranath, 2005. "Interest Rate Pass-through in Sri Lanka," MPRA Paper 64865, University Library of Munich, Germany.
    11. Cifarelli, Giulio & Paladino, Giovanna, 2016. "Time-varying mark-up and the ECB monetary policy transmission in a highly non linear framework," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 247-262.
    12. Ana-Maria Fuertes & Shelagh A. Heffernan, 2009. "Interest rate transmission in the UK: a comparative analysis across financial firms and products," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 45-63.

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