Bank and Official Interest Rates: How Do They Interact Over Time?

Melbourne Institute Working Paper Series, Working Paper No. 4/10

26 Pages Posted: 9 Oct 2010

See all articles by Guay C. Lim

Guay C. Lim

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Sarantis Tsiaplias

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Chew Lian (Michael) Chua

School of Economics, University of Nottingham Ningbo China

Date Written: October 7, 2010

Abstract

This paper implements a procedure to evaluate time-varying bank interest rate adjustments over a sample period which includes changes in industry structure, market and credit conditions and varying episodes of monetary policy. The model draws attention to the pivotal role of official rates and provides estimates of the equilibrium policy rate. The misalignment of actual official rates and their changing sensitivity to banking conditions is identified. Results are also provided for the variation in intermediation margins and pass-throughs as well as the interactions between lending and borrowing behaviour over the years, including behaviour before, during and after the global financial crisis. The case studies are the US and Australian banking systems.

Keywords: bank interest rates, time-varying asymmetric adjustments, monetary interest rate policy

JEL Classification: C32, E43, G21

Suggested Citation

Lim, Guay C. and Tsiaplias, Sarantis and Chua, Chew Lian, Bank and Official Interest Rates: How Do They Interact Over Time? (October 7, 2010). Melbourne Institute Working Paper Series, Working Paper No. 4/10, Available at SSRN: https://ssrn.com/abstract=1689302 or http://dx.doi.org/10.2139/ssrn.1689302

Guay C. Lim (Contact Author)

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
161 Barry Street
Carlton, VIC 3053
Australia

Sarantis Tsiaplias

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Chew Lian Chua

School of Economics, University of Nottingham Ningbo China ( email )

199 Taikang East Road
Ningbo, 315100
China

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