Interest rate pass-through: a nonlinear vector error-correction approach

Michal Popiel

No 274678, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: This paper analyzes pass-through from money market rates to consumer retail loan and deposit rates in Canada from 1983 to 2015 using a nonlinear vector error- correction model. This model permits estimation of long-run pass-through coeffcients while simultaneously accounting for asymmetric adjustments and short-run dynamics. In contrast to empirical frameworks used in previous studies, it also allows testing of commonly made assumptions such as exogeneity of the market rate, making inference more robust. I find that pass-through was complete for all rates before the financial crisis although only after the mid 1990s for the 1 year mortgage rate. Since the end of the 2008{09 recession, pass-through remains complete in the mortgage market but has significantly declined for deposit rates. Furthermore, many rates adjust asymmetrically but the direction of rigidity differs among rates and time periods.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 37
Date: 2016-02
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Interest rate pass-through: a nonlinear vector error-correction approach (2017)
Working Paper: Interest Rate Pass-through: A Nonlinear Vector Error-correction Approach (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274678

DOI: 10.22004/ag.econ.274678

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