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An alternative approach to the modelling of interest rate pass through and asymmetric adjustment

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  • Valadkhani, Abbas
  • Bollen, Bernard
Abstract
We propose an alternative approach to examine the nonlinear (asymmetric) behaviour of interest rates which can be both size and sign dependent. Compared to other widely used approaches, our model performs quite well based on two model selection criteria.

Suggested Citation

  • Valadkhani, Abbas & Bollen, Bernard, 2013. "An alternative approach to the modelling of interest rate pass through and asymmetric adjustment," Economics Letters, Elsevier, vol. 120(3), pages 491-494.
    • Handle: RePEc:eee:ecolet:v:120:y:2013:i:3:p:491-494
    DOI: 10.1016/j.econlet.2013.06.006
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    References listed on IDEAS

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    1. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    2. Abbas Valadkhani & Sajid Anwar, 2012. "Interest Rate Pass-Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 341-350, September.
    3. Sarno, Lucio & Thornton, Daniel L., 2003. "The dynamic relationship between the federal funds rate and the Treasury bill rate: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 27(6), pages 1079-1110, June.
    4. Chong, Beng Soon, 2010. "Interest rate deregulation: Monetary policy efficacy and rate rigidity," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1299-1307, June.
    5. Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, August.
    6. James E. Payne, 2007. "More on the monetary transmission mechanism: mortgage rates and the federal funds rate," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 29(2), pages 247-257, January.
    7. Devin Reilly & Pierre-Daniel G. Sarte, 2010. "Changes in monetary policy and the variation in interest rate changes across credit markets," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 96(2Q), pages 201-229.
    8. Enders, Walter & Granger, Clive W J, 1998. "Unit-Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 304-311, July.
    9. Stephen Rousseas, 1985. "A Markup Theory of Bank Loan Rates," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 8(1), pages 135-144, September.
    10. Liu, Ming-Hua & Margaritis, Dimitri & Tourani-Rad, Alireza, 2008. "Monetary policy transparency and pass-through of retail interest rates," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 501-511, April.
    11. James Payne & George Waters, 2008. "Interest rate pass through and asymmetric adjustment: evidence from the federal funds rate operating target period," Applied Economics, Taylor & Francis Journals, vol. 40(11), pages 1355-1362.
    12. Bachmeier, Lance, 2013. "Identification in models of gasoline pricing," Economics Letters, Elsevier, vol. 120(1), pages 71-73.
    13. Valadkhani, Abbas, 2013. "The pricing behaviour of Australian banks and building societies in the residential mortgage market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 133-151.
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    Cited by:

    1. Heinzelmann Ludwig & Missong Martin, 2020. "Nonlinear interest rate-setting behaviour of German commercial banks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 24(3), pages 1-28, June.
    2. Valadkhani, Abbas & Worthington, Andrew, 2014. "Asymmetric behavior of Australia's Big-4 banks in the mortgage market," Economic Modelling, Elsevier, vol. 43(C), pages 57-66.
    3. Valadkhani, Abbas, 2014. "Analysing interest rate mark-ups in the Australian mortgage market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 343-361.
    4. Bennouna, Hicham, 2019. "Interest rate pass-through in Morocco: Evidence from bank-level survey data," Economic Modelling, Elsevier, vol. 80(C), pages 142-157.
    5. Abbas Valadkhani & George Chen & Bernice Kotey, 2014. "Asymmetric changes in Australia’s small business loan rate," Small Business Economics, Springer, vol. 43(4), pages 945-957, December.

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    More about this item

    Keywords

    Interest rate; Error correction; Rockets and feathers; Asymmetric behaviour; Australia;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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