How do anticipated changes to short-term market rates influence banks' retail interest rates? Evidence from the four major euro area economies

Anindya Banerjee, Victor Bystrov and Paul Mizen

Working papers from Banque de France

Abstract: In this paper we argue that banks anticipate short-term market rates when setting interest rates on loans and deposits. In order to include anticipated rates in an empirical model, we use two methods to forecast market rates - a level, slope, curvature model and a principal components model - before including them in a model of retail rate adjustment for four retail rates in four major euro area economies. Using both aggregate data and data from individual French banks, we find a significant role for forecasts of market rates in determining retail rates; alternative specifications with futures information yield comparable results.

Keywords: forecasting; factor models; interest rates; pass-through. (search for similar items in EconPapers)
JEL-codes: C32 C53 E43 E44 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-eec, nep-for and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: How Do Anticipated Changes to Short-Term Market Rates Influence Banks' Retail Interest Rates? Evidence from the Four Major Euro Area Economies (2013)
Journal Article: How Do Anticipated Changes to Short‐Term Market Rates Influence Banks' Retail Interest Rates? Evidence from the Four Major Euro Area Economies (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:361

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