IDEAS home Printed from https://ideas.repec.org/p/nbb/reswpp/200405-2.html
   My bibliography  Save this paper

The Determinants of Pass-Through of Market Conditions to Bank Retail Interest Rates in Belgium

Author

Listed:
  • Ferre De Graeve

    () (Ghent University, Department of Financial Economics)

  • Olivier De Jonghe

    () (Ghent University, Department of Financial Economics)

  • Rudi Vander Vennet

    () (Ghent University, Department of Financial Economics)

Abstract

We analyse the pass-through of money market rates to retail interest rates at the disaggregate level in the Belgian banking market. First, we measure the extent of pass-through for a total of fourteen products. We find that the response varies over loans and deposits and depends positively on the maturity of the product. Second, the launch of EMU has generally not resulted in more competitive pricing by banks. Third, we assess the importance of several biases and find that heterogeneity in price-setting behaviour should be accounted for in analysing the pass-through. Fourth, we analyse bank-specific determinants of heterogeneous interest rate pass-through. We find a role for capital, liquidity and market share and we relate these results to the various channels in monetary policy transmission and to the structure-conduct-performance hypothesis in banking.

Suggested Citation

  • Ferre De Graeve & Olivier De Jonghe & Rudi Vander Vennet, 2004. "The Determinants of Pass-Through of Market Conditions to Bank Retail Interest Rates in Belgium," Working Paper Research 47, National Bank of Belgium.
  • Handle: RePEc:nbb:reswpp:200405-2
    as

    Download full text from publisher

    File URL: https://www.nbb.be/doc/oc/repec/reswpp/wp47.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Shiu-Sheng Chen & Charles Engel, 2005. "Does 'Aggregation Bias' Explain The Ppp Puzzle?," Pacific Economic Review, Wiley Blackwell, vol. 10(1), pages 49-72, February.
    2. Angeliki Kourelis & Carlo Cottarelli, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Working Papers 94/39, International Monetary Fund.
    3. Berger, Allen N, 1995. "The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 404-431, May.
    4. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-299, May.
    5. Ignazio Angeloni & Anil K. Kashyap & Benoit Mojon & Daniele Terlizzese, 2003. "The Output Composition Puzzle: A Difference in the Monetary Transmission Mechanism in the Euro Area and U.S," NBER Working Papers 9985, National Bureau of Economic Research, Inc.
    6. Carlo Cottarelli & Giovanni Ferri & Andrea Generale, 1995. "Bank Lending Rates and Financial Structure in Italy: A Case Study," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 670-700, September.
    7. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
    8. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
    9. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    10. Cook, Timothy & Hahn, Thomas, 1989. "The effect of changes in the federal funds rate target on market interest rates in the 1970s," Journal of Monetary Economics, Elsevier, vol. 24(3), pages 331-351, November.
    11. Ignazio Angeloni & Anil K. Kashyap & Benoît Mojon & Daniele Terlizzese, 2003. "The output composition puzzle: a difference in the monetary transmission mechanism in the euro area and United States," Proceedings, Federal Reserve Bank of Cleveland, pages 1265-1317.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
    2. Hasan Muhammad Mohsin, 2011. "The Impact of Monetary Policy on Lending and Deposit Rates in Pakistan: Panel Data Analysis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 199-213, September.
    3. John Ashton & Andros Gregoriou & Jerome V. Healy, 2013. "The relative influence of price and choice factors on retail deposit quantities," Working Papers 13006, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. De Graeve, Ferre & De Jonghe, Olivier & Vennet, Rudi Vander, 2007. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Journal of Banking & Finance, Elsevier, vol. 31(1), pages 259-278, January.
    5. Jane BOGOEV, 2010. "Investigation Of The Determinants Of The Adjustment Of Lending Rates In Macedonia – A Sur Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 6, pages 89-116, December.
    6. Machava, Agostinho, 2017. "The Macroeconomic Determinants of the Pass-Through from the Market Interest Rate to the Bank Lending Rate in Mozambique," Umeå Economic Studies 954, Umeå University, Department of Economics.
    7. 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.
    8. John K. Ashton & Andros Gregoriou, 2014. "The Influence of Banking Centralization on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy," Regional Studies, Taylor & Francis Journals, vol. 48(9), pages 1467-1482, September.
    9. repec:wsi:rpbfmp:v:16:y:2013:i:04:n:s0219091513500239 is not listed on IDEAS
    10. V. Baugnet & M. Hradisky, 2004. "Determinants of Belgian bank lending intrest rates," Economic Review, National Bank of Belgium, issue iii, pages 43-58, September.
    11. Geert Langenus, 2006. "Fiscal sustainability indicators and policy design in the face of ageing," Working Paper Research 102, National Bank of Belgium.
    12. Sander, Harald & Kleimeier, Stefanie, 2006. "Convergence of interest rate pass-through in a wider euro zone?," Economic Systems, Elsevier, vol. 30(4), pages 405-423, December.
    13. repec:dau:papers:123456789/3369 is not listed on IDEAS

    More about this item

    Keywords

    pass-through; Heterogeneous panel; aggregation bias; panel cointegration; retailbanking; bank-level interest rates; bank-level determinants;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    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:nbb:reswpp:200405-2. 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: (). General contact details of provider: http://edirc.repec.org/data/bnbgvbe.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.