Interest Rate Pass-Through and Monetary Transmission in Asia

Tai, Pih Nee; Sek, Siok Kun; Har, Wai-Mun

doi:10.5539/ijef.v4n2p163

Cited by 33 publications

(27 citation statements)

References 13 publications

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“…This finding is consistent with the observation of Bruna (2008) who pointed out that deposit rate reacts quicker than the lending rate to the change of the money market rate. The work of Tai et al (2012) and Tang et al (2015) also reported that the deposit rate has a higher degree of pass-through than the lending rate. Our results further show that the U.S. federal funds rate is found to have an impact on the lending rate but not on the deposit rate.…”

Section: Resultsmentioning

confidence: 95%

The pass-through effect of interest rate and asymmetric adjustment in Indonesia

Puah¹,

Liew²,

Tang³

2017

EA-XXI

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Abstract. Using the data set for the sample period of January 1999 to December 2016, this paper aims to analyse the interest rate pass-through effect and the asymmetric behaviour of retail rates in Indonesia's economy. By employing asymmetric threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models, the deposit and lending rates were found to have an incomplete pass-through effect in response to the changes in the money market rates. Based on the empirical results, an asymmetric behaviour was discovered in the adjustment of the deposit and lending rates. The asymmetric error correction models further reflected that the deposit rate has a faster speed in the downward direction while the lending rate adjusts more rapidly in the upward direction.

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Section: Resultsmentioning

confidence: 95%

The pass-through effect of interest rate and asymmetric adjustment in Indonesia

Puah¹,

Liew²,

Tang³

2017

EA-XXI

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“…Tai, Sek and Har (2012) explored the effectiveness of interest rate transmission mechanism in six Asian economies (Note 7) using Seemingly Unrelated Regression (SUR) model for the period 1988-2010 (Note 8). The study found an evidence of slow and sluggish transmission across the countries, high degree of interest rate stickiness or failure of government in controlling the market rate is the possible factors for the slow and small transmission into deposit and lending rates.…”

Section: Overview Of the Literaturementioning

confidence: 99%

“…The model assumes perfect competition with complete information and equality of prices with marginal costs. Likewise, the derivative of prices with respect to marginal cost equals one but becomes less than one if the perfect competition and information prices are suspended (Tai, Sek, & Har, 2012;Rousseas 1985).…”

Section: Model Specificationmentioning

confidence: 99%

“…High interest rate pass-through implies a close link between monetary policy and the retail banking rate (Note 2). An effective government control of the market rate ensures the economy achieve its policy target while an ineffective or incomplete interest rate pass-through can lead to the failure of monetary policy to stabilize shocks (Tai, Sek & Har, 2012).…”

Section: Introductionmentioning

confidence: 99%

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Interest Rate Pass-Through to Macroeconomic Variables: The Nigerian Experience

Ogundipe¹,

Alege²

2013

IJEF

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The effectiveness of monetary policy depends on the adjustment response of Central Banks short-term interest rate on the real interest rates charged by commercial banks and ultimately on macroeconomic indicators of investment and consumption in the economy. Thus, the extent of interest rate pass-through largely depends on how effective the process of financial intermediation works and to what extent individual bank characteristics influence or hinder a perfect adjustment of product rates based on market conditions. The study examines the speed and completeness of pass-through from policy rates to retail bank rates and the effectiveness of monetary policy stance in influencing macroeconomic policy targets using a co-integration analysis based on Johansen and Juselius maximum likelihood and Engle-Granger two step procedures for the period 1970-2011. The VAR based Error Correction Model (ECM) and the Mean Adjustment Lag (MAL) was used to determine the short run estimates and asymmetric behaviour respectively. The study found an evidence of downward stickiness both in the short-run and long-run policy pass-through to the retail bank rates. In order to ensure robustness of the result, the Impulse Response Function (IRF) and Variance Decomposition (VD) analysis were conducted and similar slow and sluggish pass-through was obtained. The study as well, found pass-through from policy rate to macroeconomic variables to exhibit extremely rigid immediate responses.

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“…Accordingly, the studies indicated several characteristics such as the size of the bank, structure of the financial market, type of customers, competitiveness of the banking sector, elasticity of the demand on banking services and information asymmetry in the economy and the loan risk level that makes stickiness of interest rate pass-through in the short-run. Also, a cross country study to assess retail rate stickiness was conducted for Asia by Tai, Sek and Har (2012). This study consists of two periods: before the Asian financial crisis and after the financial crisis.…”

Section: Incompletenessmentioning

confidence: 99%