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Are there asymmetries in the response of bank interest rates monetary shocks?

Author

Listed:
  • Leonardo Gambacorta

    () (Bank of Italy, Economic Research Department)

  • Simonetta Iannotti

    () (Bank of Italy, Supervision and Regulation Department)

Abstract

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.

Suggested Citation

  • Leonardo Gambacorta & Simonetta Iannotti, 2005. "Are there asymmetries in the response of bank interest rates monetary shocks?," Temi di discussione (Economic working papers) 566, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_566_05
    as

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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2005/2005-0566/tema_566.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Giuseppe Marotta, 2006. "Structural breaks in the interest rate pass-through and the euro. A cross-country study in the euro area and the UK," Heterogeneity and monetary policy 0612, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
    2. Michiel van Leuvensteijn & Jacob Bikker & Adrian van Rixtel & Christoffer Kok Sørensen, 2011. "A new approach to measuring competition in the loan markets of the euro area," Applied Economics, Taylor & Francis Journals, vol. 43(23), pages 3155-3167.
    3. Nobili, Andrea & Zollino, Francesco, 2017. "A structural model for the housing and credit market in Italy," Journal of Housing Economics, Elsevier, vol. 36(C), pages 73-87.
    4. Sauro Mocetti, 2012. "Educational choices and the selection process: before and after compulsory schooling," Education Economics, Taylor & Francis Journals, vol. 20(2), pages 189-209, February.
    5. Gianluca Di Lorenzo & Giuseppe Marotta, 2006. "Multiple breaks in lending rate pass-through A cross country study for the euro area," Department of Economics 0524, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".
    6. Vajanne, Laura, 2009. "Inferring market power from retail deposit interest rates in the euro area," Research Discussion Papers 27/2009, Bank of Finland.
    7. Riccardo Bonci & Francesco Columba, 2007. "The Effects Of Monetary Policy Shocks On Flow Of Funds:The Italian Case," Money Macro and Finance (MMF) Research Group Conference 2006 75, Money Macro and Finance Research Group.

    More about this item

    Keywords

    monetary policy transmission; interest rates; asymmetries; liberalization;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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