Interest Rate Pass-Through in Turkey and Impact of Global Financial Crisis: Asymmetric Threshold Cointegration Analysis

Abstract

This paper aims to investigate the interest rate pass-through of monetary policy rate to banking retail rates in Turkey by employing the asymmetric threshold autoregressive (TAR) and momentum threshold autoegressive (MTAR) procedures introduced by Enders and Siklos (2001). Over the period December 2001 to April 2011, the empirical results of asymmetric threshold cointegration analysis suggest that there exist significant and complete pass-through between policy rate and loan rates. Positive and negative departures from the equilibrium converge to long run path almost at the same speed. Pace of convergence is about two to three months for all loan rates. Policy rate has significant short run impact on loan rates. Our analysis revealed that there is no significant relationship between policy rate and bank deposit rates due to sluggish adjustment of deposit rates. Lastly, the speed and behavior of interest rate pass-through between policy rate and loan rates did not change when we encounter the effect of 2008 financial crisis. Having a banking sector dominated financial system in Turkey, the results suggest that banks adjust loan rates faster than deposit rates. This indicates that Central Bank can affect the consumption behavior of people, in other words aggregate demand through loan rates.

Loom of Symmetric Pass-Through

“…Adjustment is symmetric for all variables and it is evident that the response of variables to the real interest rate does not depend on the sign of the shock. This symmetry finding is consistent with the results by Yuksel and Ozcan (2013) and Zhang et al (2017). Moreover, adjustment parameters are nearly zero.…”

“…Yildirim (2014) uses MTAR and TAR methods and finds that an increase in the policy rate also pushes the lending rate up, but a fall in the policy rate drags down it less. Yuksel and Ozcan (2013) find non-stationary results for the policy rate and the lending rates with the augmented Dickey Fuller (ADF) trend and intercept specification and investigate an interest rate pass-through effect using the asymmetric threshold cointegration method. They find a symmetric adjustment for cash, vehicle and commercial loans and asymmetric adjustment for housing loans for Turkey but could not find any for deposit rates.…”

Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks

“…The results also indicate asymmetries in the response of the adjustable rates to changes in the federal funds rate. In an analysis of interest rates in Turkey, Yuksel and Ozcan (2013) employ the asymmetric threshold autoregressive (TAR) and MTAR procedures over the period December 2001 to April 2011 and find significant and complete passthrough between policy rate and loan rates. Positive and negative departures from the equilibrium converge to long-run path almost at the same speed.…”

Türki̇ye Kredi̇ Pi̇yasasinda Fai̇z Orani Asi̇metri̇k Geçi̇şi̇ni̇n Modellenmesi̇: Eşi̇k Eşbütünleşme Anali̇zi̇nden Yeni̇ Kanitlar

“…(2018, Avci and Yucel (2017) Sahin and Cicek (2018)). While Ozdemir (2009), Yüksel and Özcan (2015), and Avci and Yucel (2017) rejects the asymmetry in IRPT, others found some evidence supporting the APT hypothesis in Turkish money market.…”

“…Although, pass-through process plays very important role in terms of the efficiency of monetary policy in Turkey, research on APT of interest rates in Turkey is comparatively rare. There are few studies (to our best knowledge) focusing on APT in Turkey and findings of these studies are controversial (see Aydın (2007), Özdemir (2009), Yüksel and Özcan (2015) and Yıldırım (2014), Binici et.al. (2018, Avci and Yucel (2017) Sahin and Cicek (2018)).…”