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Jurnal

Journal of Banking and Finance

Keyword

Bank interest rates;Error-correction model;structural breaks;Stochastic volatility;Bayesian econometrics

Pengarang

  1. S.Avouyi-Dovi
  2. G.Honry
  3. P.Sevestre

    Subject

    1. FINANCIAL
    2. BANKING

      [Abstrak]

      We analyse the dynamics of the pass-through of banks’ marginal cost to
      bank lending rates over the 2008 crisis and the euro area sovereign debt
      crisis in France, Germany, Greece, Italy, Portugal and Spain. We
      measure banks’ marginal cost by their rate on new deposits, contrary to
      the literature that focuses on money market rates. This allows us to
      account for banks’ risks. We focus on the interest rate on new
      short-term loans granted to non-financial corporations in these
      countries. Our analysis is based on an error-correction approach that we
      extend to handle the time-varying long-run relationship between banks’
      lending rates and banks’ marginal cost, as well as stochastic
      volatility. Our application is based on a harmonised monthly database
      from January 2003 to October 2014. We estimate the model within a
      Bayesian framework, using Markov Chain Monte Carlo methods (MCMC).We
      reject the view that the transmission mechanism is permanent over time.
      The long-run relationship moved with the sovereign debt crises to a new
      one, with a slower pass-through and higher bank lending rates. Its
      developments are heterogeneous from one country to the other.
      Impediments to the transmission of monetary rates depend on the
      heterogeneity in banks marginal costs and therefore, its risks. We also
      find that rates to small firms increase compared to large firms in a few
      countries. Using a VAR model, we show that overall, the effect of a
      shock on the rate of new deposits on the unexpected variances of new
      loans has been less important since 2010. These results confirm the
      slowdown in the transmission mechanism.

      Periode

      Vol 79, Tahun 2017

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