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New Evidence of Interest Rate Pass-through in Taiwan: A Nonlinear Autoregressive Distributed Lag Model

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  • Zan Zhang
  • Su-Ling Tsai
  • Tsangyao Chang

Abstract

We adopt the newly developed nonlinear autoregressive distributed lag model, advanced by Shin, Yu and Greenwood-Nimmo [(2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework, in: Festschrift in Honor of Peter Schmidt, pp. 281–314 (New York: Springer)], to investigate the interest rate(IR) pass-through (IRPT) mechanism in Taiwan from 1971 M07 to 2014 M11. We find that the incomplete IRPT mechanism of deposit markets shows an asymmetric adjustment in the short run and symmetric adjustments in the long run. The deposit rate is rigid downward, which supports the customer reaction hypothesis. Moreover, we find that both the short-run and the long-run IRPT channels from the policy rate to the lending rate are also incomplete in the short run but not in the long run. The purpose of this paper is to provide accurate assessment criteria for the central bank to understand the nonlinear dynamics among the policy IR and the retail IR, thus leading to more efficient policy-making and forecasting for the Taiwanese government.

Suggested Citation

  • Zan Zhang & Su-Ling Tsai & Tsangyao Chang, 2017. "New Evidence of Interest Rate Pass-through in Taiwan: A Nonlinear Autoregressive Distributed Lag Model," Global Economic Review, Taylor & Francis Journals, vol. 46(2), pages 129-142, April.
    • Handle: RePEc:taf:glecrv:v:46:y:2017:i:2:p:129-142
    DOI: 10.1080/1226508X.2017.1278710
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    Cited by:

    1. Adil, Masudul Hasan & Haider, Salman & Hatekar, Neeraj, 2018. "The empirical verification of money demand in case of India: Post-reform era," MPRA Paper 87148, University Library of Munich, Germany, revised 07 Jun 2018.
    2. Mourad Zmami & Ousama Ben-Salha, 2019. "Does Oil Price Drive World Food Prices? Evidence from Linear and Nonlinear ARDL Modeling," Economies, MDPI, vol. 7(1), pages 1-18, February.
    3. Afsin Sahin, 2019. "Loom of Symmetric Pass-Through," Economies, MDPI, vol. 7(1), pages 1-25, February.
    4. Muddassar Sarfraz & Muhammad Mohsin & Sobia Naseem & Amit Kumar, 2021. "Modeling the relationship between carbon emissions and environmental sustainability during COVID-19: a new evidence from asymmetric ARDL cointegration approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(11), pages 16208-16226, November.
    5. Umar Muhammad Gummi & Yang Rong & Utiya Bello & Abdulhamid Sillah Umar & Asiya Mu'azu, 2021. "On the Analysis of Food and Oil Markets in Nigeria: What Prices Tell Us from Asymmetric and Partial Structural Change Modeling?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 52-64.
    6. Galindo, Arturo J. & Steiner, Roberto, 2022. "Asymmetric interest rate transmission in an inflation-targeting framework: The case of Colombia," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(3).
    7. Moeti Damane, 2022. "Investigating the determinants of commercial bank interest rate spreads in Lesotho: Evidence from autoregressive distributed lag (ARDL) and non‐linear ARDL approaches," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4256-4278, October.
    8. Masudul Hasan Adil & Salman Haider & Neeraj R. Hatekar, 2020. "Empirical Assessment of Money Demand Stability Under India’s Open Economy: Non-linear ARDL Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 891-909, December.
    9. Ufuk CAN & Zeynep Gizem CAN & Süleyman DEĞİRMEN, 2019. "Paranın Dolaşım Hızının ve Para Talebi Fonksiyonunun Ekonometrik Analizi: Türkiye Örneği," Istanbul Business Research, Istanbul University Business School, vol. 48(2), pages 218-247, November.

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