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Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets

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  • F. DE GRAEVE
  • O. DE JONGHE
  • R. VANDER VENNET

Abstract

This paper analyses the pass-through of money market rates to retail interest rates in the Belgian banking market using disaggregate data and allowing for heterogeneous price setting behavior. We find that 1) corporate loans are priced more competitively than consumer loans, 2) pass-through is higher for products with longer maturities, 3) EMU did not increase price competition, 4) bank behavior is consistent with the presence of menu costs, and 5) existing empirical evidence may underestimate adjustment speed. Furthermore, heterogeneous price setting among banks is driven by market power as well as the bank lending channel.

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  • F. De Graeve & O. De Jonghe & R. Vander Vennet, 2004. "Competition, transmission and bank pricing policies: Evidence from Belgian loan and deposit markets," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/261, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:04/261
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    More about this item

    Keywords

    pass-through; retail bank interest rates; heterogeneous panel cointegration; bank lending channel; asymmetry;
    All these keywords.

    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

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