Measuring bank funding costs in the analysis of interest rate pass-through: Evidence from Poland

Mariusz Kapuściński and Ewa Stanisławska

Economic Modelling, 2018, vol. 70, issue C, 288-300

Abstract: Literature offers different explanations of the increase in lending spreads and limited impact of monetary policy on lending rates since the global financial crisis: worsened bank funding conditions, higher perceived risk and the need to improve capital position. However, the empirical assessment of their relative relevance seems still insufficient. Therefore we investigate the determinants of lending rates using bank-level panel data by including all the above factors in empirical analysis of the interest rate pass-through. In particular, to better capture a relative increase in banks' funding costs we calculate a weighted average cost of liabilities and use it instead of a money market interest rate in testing how banks set lending rates. In contrast to the money market rate – usually employed in interest rate transmission analyses – the weighted average cost of liabilities comprises interest rates on many sources of banks' funding and is sensitive to changes in structure of banks' liabilities. Our findings imply that money market interest rates may not be a sufficiently good proxy for banks' funding costs, especially in the periods of increased financial stress and for analyses of the transmission of negative interest rates. In this way the paper offers a new analytical perspective on analyzing monetary transmission mechanism in the banking sector.

Keywords: Interest rate pass-through; Monetary policy; Global financial crisis; Lending spreads; Panel data models (search for similar items in EconPapers)
JEL-codes: C23 E43 E52 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999316308616
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:70:y:2018:i:c:p:288-300

DOI: 10.1016/j.econmod.2017.11.009

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().