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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
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    monetary policy transmission; interest rates; asymmetries; liberalization;
    All these keywords.

    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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