Are there asymmetries in the response of bank interest rates monetary shocks?
This paper examines the velocity and asymmetry in the response of bank interest rates to monetary policy shocks. Using an Asymmetric Vector Error Correction Model (AVECM), it analyses the pass-through of changes in the money market rates to retail bank interest rates in Italy in the period 1985-2002. The main results of the paper are: 1) the speed in adjustment of bank interest rates to monetary policy changes have significantly increased after the introduction of the 1993 Consolidated Law on Banking; 2) interest rate adjustment, in response to positive and negative shocks, are asymmetric in the short run, but not in the long run; 3) banks adjust their loan (deposit) rate at a faster rate during period of monetary tightening (easing); 4) this asymmetry has almost vanished since the nineties.
|Date of creation:||Nov 2005|
|Contact details of provider:|| Postal: Via Nazionale, 91 - 00184 Roma|
Web page: http://www.bancaditalia.it
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, .
- de Bondt, Gabe & Mojon, Benoît & Valla, Natacha, 2005. "Term structure and the sluggishness of retail bank interest rates in euro area countries," Working Paper Series 0518, European Central Bank.
- Berlin, Mitchell & Mester, Loretta J, 1999.
"Deposits and Relationship Lending,"
Review of Financial Studies,
Society for Financial Studies, vol. 12(3), pages 579-607.
- Mitchell Berlin & Loretta J. Mester, 1997. "Deposits and relationship lending," Working Papers 96-18, Federal Reserve Bank of Philadelphia.
- Mitchell Berlin & Loretta J. Mester, 1998. "Deposits and relationship lending," Working Papers 98-22, Federal Reserve Bank of Philadelphia.
- Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
- Stephen D. Oliner & Glenn D. Rudebusch, 1994. "Is there a broad credit channel for monetary policy?," Working Paper Series / Economic Activity Section 146, Board of Governors of the Federal Reserve System (U.S.).
- David Neumark & Steven A. Sharpe, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 657-680.
- David Neumark & Steven A. Sharpe, 1989. "Market structure and the nature of price rigidity: evidence from the market for consumer deposits," Finance and Economics Discussion Series 52, Board of Governors of the Federal Reserve System (U.S.).
- Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
- Carlo Cottarelli & Giovanni Ferri & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy: A Case Study," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 670-700, September.
- Giovanni Ferri & Carlo Cottarelli & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy; A Case Study," IMF Working Papers 95/38, International Monetary Fund.
- Angelini, Paolo & Cetorelli, Nicola, 2003. " The Effects of Regulatory Reform on Competition in the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 663-684, October.
- Banerjee, Anindya & Lumsdaine, Robin L & Stock, James H, 1992. "Recursive and Sequential Tests of the Unit-Root and Trend-Break Hypotheses: Theory and International Evidence," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 271-287, July.
- Anindya Banerjee & Robin L. Lumsdaine & James H. Stock, 1990. "Recursive and Sequential Tests of the Unit Root and Trend Break Hypothesis: Theory and International Evidence," NBER Working Papers 3510, National Bureau of Economic Research, Inc.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
- Angeloni,I. & Buttiglione,L. & Ferri,G. & Gaiotti,E., 1995. "The Credit Channel of Policy Across Heterogeneous Banks:the Case of Italy," Papers 256, Banca Italia - Servizio di Studi.
- Lim, G C, 2001. "Bank Interest Rate Adjustments: Are They Asymmetric?," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 135-147, June.
- Gambacorta, Leonardo, 2008. "How do banks set interest rates?," European Economic Review, Elsevier, vol. 52(5), pages 792-819, July.
- Leonardo Gambacorta, 2004. "How Do Banks Set Interest Rates?," NBER Working Papers 10295, National Bureau of Economic Research, Inc.
- Leonardo Gambacorta, 2005. "How Do Banks Set Interest Rates?," Temi di discussione (Economic working papers) 542, Bank of Italy, Economic Research and International Relations Area.
- Christopher Green, 1998. "Banks as Interest Rate Managers," Journal of Financial Services Research, Springer;Western Finance Association, vol. 14(3), pages 189-208, December.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-231, February.
- Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, April.
- Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
- Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
- Anil K. Kashyap & Jeremy C. Stein, 1997. "The role of banks in monetary policy: a survey with implications for the European Monetary Union," Economic Perspectives, Federal Reserve Bank of Chicago, issue Sep, pages 2-18. Full references (including those not matched with items on IDEAS)