Conventional monetary policy and the degree of interest rate pass through in the long run: a non-normal approach

Dong-Yop Oh (), Hyejin Lee () and Karl Boulware
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Dong-Yop Oh: Department of Information Systems, University of Texas Rio Grande Valley
Hyejin Lee: Department of Information Systems, University of Texas Rio Grande Valley

No 2016-002, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: We investigate the long-run pass through of the federal funds rate to the prime rate from February 1987 to February 2015. Unlike previous studies that rely on conventional cointegration tests, this study employs cointegration tests based on the “residual augmented least squares” (RALS). The RALS cointegration tests have been shown to gain power when using a linear model in the presence of non-normal errors. The results indicate a significant cointegrating relation between the federal funds rate and the prime rate with incomplete interest rate pass through.

Keywords: ATT/WTO; Monetary policy; interest rate pass through; cointegration analysis; non-normal errors; RALS (search for similar items in EconPapers)
JEL-codes: C12 C22 E43 E52 E58 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2016-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2016-002

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