IDEAS home Printed from https://ideas.repec.org/p/com/wpaper/025.html
   My bibliography  Save this paper

The Response of Retail Interest Rates to Factor Forecasts of Money Market Rates in Major European Economies

Author

Listed:
  • Anindya Banerjee
  • Victor Bystrov
  • Paul Mizen

Abstract

The recent financial crisis has underlined that banks no longer simply accumulate deposits and lend a fraction to their clients. Instead they use interbank markets and structured finance to increase their loan book. This has implications for the understanding of interest rate pass through since a large number of interest rates and macro variables influence the retail rates they set on loans and deposits. This paper uses Stock-Watson factor forecasts to predict market interest rates which are then used as the basis for setting retail rates. We find a significant role for forecasts of future interest rates in determining short- and long-run pass through, and we argue that models which do not include future rates are misspecified.

Suggested Citation

  • Anindya Banerjee & Victor Bystrov & Paul Mizen, 2010. "The Response of Retail Interest Rates to Factor Forecasts of Money Market Rates in Major European Economies," Working Papers 025, COMISEF.
  • Handle: RePEc:com:wpaper:025
    as

    Download full text from publisher

    File URL: http://comisef.eu/files/wps025.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jan Bruha, 2011. "Retail Credit Premiums and Macroeconomic Developments," Occasional Publications - Chapters in Edited Volumes,in: CNB Financial Stability Report 2010/2011, chapter 0, pages 133-140 Czech National Bank, Research Department.
    2. Iva Cecchin, 2011. "Mortgage Rate Pass-Through in Switzerland," Working Papers 2011-08, Swiss National Bank.
    3. 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.

    More about this item

    Keywords

    forecasting; factor models; interest rate pass-through;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:com:wpaper:025. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anil Khuman). General contact details of provider: http://www.comisef.eu .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.