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Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data

  • Kauko , Karlo

    ()

    (Bank of Finland Research)

This paper presents econometric analyses on the determination of bank deposit and lending rates using longitudinal Finnish data. Interest rate pass-through is very strong, possibly complete, in the case of lending rates; in the case of deposit rates the pass-through is far from complete, even in the long term. The monetary union has benefited customers by decreasing the average rate on new loans. Credit and interest rate risk premiums are clearly observable in banks' lending rates. The impact of money market rates on loan stock rates seems to have been non-linear; no obvious explanation for this phenomenon has been found.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0509netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 9/2005.

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Length: 48 pages
Date of creation: 11 May 2005
Date of revision:
Handle: RePEc:hhs:bofrdp:2005_009
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/
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  1. Maudos, Joaquin & Fernandez de Guevara, Juan, 2003. "Factors Explaining the Interest Margin in the Banking Sectors of the European Union," MPRA Paper 15252, University Library of Munich, Germany.
  2. Rodrigo Fuentes & Solange Berstein, 2004. "Concentration and Price Rigidity: Evidence for the deposit Market in Chile," Econometric Society 2004 Latin American Meetings 67, Econometric Society.
  3. Gambacorta, Leonardo, 2008. "How do banks set interest rates?," European Economic Review, Elsevier, vol. 52(5), pages 792-819, July.
  4. Paul Mizen & Boris Hofmann, 2002. "Base rate pass-through: evidence from banks' and building societies' retail rates," Bank of England working papers 170, Bank of England.
  5. Richard J. Rosen, 2003. "Banking market conditions and deposit interest rates," Working Paper Series WP-03-19, Federal Reserve Bank of Chicago.
  6. Canhoto, Ana, 2004. "Portuguese banking: A structural model of competition in the deposits market," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 41-63.
  7. 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 217-31, February.
  8. Sander Harald & Kleimeier Stefanie, 2003. "Convergence in Eurozone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Timothy H. Hannan & Robin A. Prager, 2001. "The competitive implications of multimarket bank branching," Finance and Economics Discussion Series 2001-43, Board of Governors of the Federal Reserve System (U.S.).
  10. Angbazo, Lazarus, 1997. "Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking," Journal of Banking & Finance, Elsevier, vol. 21(1), pages 55-87, January.
  11. Angeloni, Ignazio & Ehrmann, Michael, 2003. "Monetary policy transmission in the euro area: any changes after EMU?," Working Paper Series 0240, European Central Bank.
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