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Interest Rate Pass-Through to Turkish Lending Rates: A Threshold Cointegration Analysis

  • Dilem Yildirim

    ()

This paper aims to investigate the actual nature of the interest rate pass-through to Turkish cash, automobile, housing and corporate loan rates. Focusing on the possibility of nonlinearity in the adjustment of lending rates due to financial market conditions and monetary policies, we adopt the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models of Enders and Siklos (2001). Empirical results suggest substantial asymmetries (nonlinearities) in all lending rates. More specifically, banks adjust their lending rates faster in response to increases in negative discrepancies from the long-run equilibrium arising from an increase in the money market rate, while they act slowly following money market rate decreases. Furthermore, the degree of reluctance of banks to follow money market rate decreases appears to vary across lending rates, suggesting the existence of sectoral heterogeneities besides asymmetries.

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File URL: http://www.erc.metu.edu.tr/menu/series12/1207.pdf
File Function: First version, 2012
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Paper provided by ERC - Economic Research Center, Middle East Technical University in its series ERC Working Papers with number 1207.

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Length: 20 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Handle: RePEc:met:wpaper:1207
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  1. Bredin, Don & Fitzpatrick, Trevor & O'Reilly, Gerard, 2001. "Retail Interest Rate Pass-Through: The Irish Experience," Research Technical Papers 6/RT/01, Central Bank of Ireland.
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  3. Kleimeier,Stefanie & Sander,Harald, 2004. "Interest Rate Pass-through in an Enlarged Europe: The Role of Banking Market Structure for Monetary Policy Transmission in Transition Countries," Research Memorandum 045, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Becker, Ralf & Osborn, Denise R. & Yildirim, Dilem, 2012. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Economic Modelling, Elsevier, vol. 29(6), pages 2504-2513.
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  6. Ana-Maria Fuertes & Shelagh Heffernan & Elena Kalotychou, 2010. "How do UK Banks React to Changing Central Bank Rates?," Journal of Financial Services Research, Springer, vol. 37(2), pages 99-130, June.
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  16. Rocha, Manuel Duarte, 2012. "Interest rate pass-through in Portugal: Interactions, asymmetries and heterogeneities," Journal of Policy Modeling, Elsevier, vol. 34(1), pages 64-80.
  17. Roman Horvath & Anca Maria Podpiera, 2009. "Heterogeneity in Bank Pricing Policies: The Czech Evidence," Working Papers 2009/8, Czech National Bank, Research Department.
  18. Heffernan, Shelagh A, 1997. "Modelling British Interest Rate Adjustment: An Error Correction Approach," Economica, London School of Economics and Political Science, vol. 64(254), pages 211-31, May.
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  21. Kleimeier, Stefanie & Sander, Harald, 2006. "Expected versus unexpected monetary policy impulses and interest rate pass-through in euro-zone retail banking markets," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1839-1870, July.
  22. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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