A Comparative study for nonlinear structure of the interest rate pass through

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2012
Değer, Osman
This study investigates the interest rate pass through from the money market rate to the lending rate by utilizing monthly data of fifteen countries, grouped as high income, upper middle income and lower middle income, over the period 1999:01-2011:09. Taking the linear cointegration test of Engle-Granger as benchmark, we employ threshold cointegration tests of Enders and Siklos (2001) in order to account for the possible nonlinearities in the pass-through process. Empirical results reveal that the pass through process is complete in three countries; Republic of Korea, Latvia and Malaysia and the adjustment of the lending rate is symmetric in two countries; Armenia and Republic of Korea. Moreover, it is observed that the adjustment of the lending rate is upward sticky in six countries; Bolivia, Philippines, Malaysia, Dominican Republic, Thailand and Croatia, whereas it is downward sticky in seven countries; Ukraine, Sri Lanka, Latvia, Peru, Kuwait, Hong Kong and Czech Republic. Furthermore, our estimation results suggest that heterogeneities in the pass-through mechanism across countries can be mainly explained by income level, inflation, market power, financial sector development and market volatility.
Citation Formats
O. Değer, “A Comparative study for nonlinear structure of the interest rate pass through,” M.S. - Master of Science, Middle East Technical University, 2012.