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On the dynamics of lending and deposit interest rates in emerging markets: a non-linear approach

Author

Listed:
  • Ana María Iregui
  • Costas Milas
  • Jesús Otero
Abstract
This paper studies the dynamics of lending and deposit rates in four emerging markets in Latin America: Argentina, Chile, Colombia and Mexico. The dynamics of interest rates exhibit a regime-switching behavior, where the transition from one regime to the other is controlled by the interest rate spread difference. The first regime, which is characterized by negative deviations of the interest rate spread relative to an estimated threshold, occurs during periods of financial liberalization. The second regime, which is characterized by positive deviations of the interest rate spread relative to the estimated threshold, occurs during periods of financial inefficiency and increasing government intervention. By capturing changing policy regimes from government intervention to a more financially liberalized environment and vice versa, the non-linear specification proves superior to the linear one. ********************************************************************** Este trabajo estudia el comportamiento dinámico de las tasas de interés de captación y colocación en cuatro mercados emergentes en Latinoamérica: Argentina, Chile, Colombia y México. La dinámica de las tasas de interés muestra un comportamiento de cambio de régimen, donde la transición de un régimen a otro, es controlada por el diferencial entre las tasas. El primer régimen, caracterizado por desviaciones negativas del diferencial entre las tasas con respecto a un umbral estimado, ocurre durante periodos de liberalización financiera. El segundo, caracterizado por desviaciones positivas, ocurre durante periodos de ineficiencia financiera y creciente intervención. La especificación no lineal resulta mejor que la lineal en la medida en que permite capturar cambios de régimen.

Suggested Citation

  • Ana María Iregui & Costas Milas & Jesús Otero, 2001. "On the dynamics of lending and deposit interest rates in emerging markets: a non-linear approach," Borradores de Investigación 3297, Universidad del Rosario.
    • Handle: RePEc:col:000091:003297
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    References listed on IDEAS

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    Cited by:

    1. Andriakopoulos, Konstantinos & Ladas, Augoustinos & Andriakopoulos, Panagiotis, 2020. "Bank efficiency and leasing in U.S.A. banking system," MPRA Paper 112645, University Library of Munich, Germany.
    2. Holmes, Mark J. & Iregui, Ana María & Otero, Jesús, 2015. "Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks," Economic Modelling, Elsevier, vol. 49(C), pages 270-277.
    3. Wang, Kuan-Min & Lee, Yuan-Ming, 2009. "Market volatility and retail interest rate pass-through," Economic Modelling, Elsevier, vol. 26(6), pages 1270-1282, November.
    4. Kuan-Min Wang, 2010. "Expected and Unexpected Impulses of Monetary Policy on the Interest Pass-Through Mechanism in Asian Countries," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 95-137, May.
    5. Hsu-Ling Chang & Chi-Wei Su, 2010. "The Lending-Deposit Rate Relationship in Eastern European Countries: Evidence from the Rank Test for Non-linear Cointegration," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 534-544, December.
    6. Rafik Harkati & Syed Musa Alhabshi & Salina Kassim & Noraini Mohd Ariffin, 2022. "Market structure and power: comparative empirical evidence from a dual banking system," Economic Change and Restructuring, Springer, vol. 55(3), pages 1815-1873, August.
    7. Holmes, Mark J. & Iregui, Ana María & Otero, Jesús, 2019. "Interest rate convergence across maturities: Evidence from bank data in an emerging market economy," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 57-70.

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    More about this item

    Keywords

    Interest rates; Spreads; Emerging markets; Non-linear models; Regimes;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • 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
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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