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No. 93. MONETARY AND BANKING POLICY TRANSMISSION THROUGH INTEREST RATES: AN EMPIRICAL APPLICATION TO THE USA, CANADA, U.K. AND EUROPEAN UNION

Published in DISCUSSION PAPERS

Y. Panagopoulos, Ι. Reziti, Α. Spiliotis. 2007.

 

The main issue of this paper is the examination of the pass-through (PT) mark-up [the long run difference between deposit and lending rates] behavior in the banking systems of the USA, Canada, U.K. and European Union. The selection of the wholesale interest rate is also an important part of this PT transmission framework because it is related to the money supply process and therefore the central bank (C.B.)’s policy capabilities. In the empirical part, a Johansen co-integration based error-correction procedure (ECM-GE) is implemented for the wholesale interest rate selection. Then an LSE-Hendry general to specific model (GETS) is applied, for the revelation of the banking sector PT interest rate behavior. In the empirical part, on the issue of the wholesale interest rate selection, the USA, Canada and European Union show a shortrun favor of the money market (M-M) rates (a rather Post-Keynesian [PK] transmission behavior) while the U.K. shows a short-run favor of the C.B. policy rates (a rather New Consensus [NC] transmission behavior). On the issue of the interest rate PT behavior, the results indicate that Canada and the USA appear to have the highest mark-up effect, while the U.K. has the smallest. 

 

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