Bank competition, interest rate pass-through and the impact of the global financial crisis: evidence from Hong Kong and Macao

Jingya Li, Zongyuan Li () and Ming-Hua Liu

China Finance Review International, 2022, vol. 12, issue 4, 646-666

Abstract: Purpose - The authors examine the interest rate pass-through in Hong Kong (HK) and Macao both in the long term and short term. Design/methodology/approach - The authors use time series methodology, i.e. unit root, cointegration and error correction models. Findings - The results show that in the post-global financial crisis (GFC) period, both the long-run and short-run interest rate pass-through from policy rates to prime rates have disappeared in Macao and are weakened significantly in Hong Kong. The long-term relationship between deposit rates and policy rates no longer exists in either market while the short-term relationship has been reduced significantly. Research limitations/implications - The results indicate that the effectiveness of monetary policy in HK and Macao has been seriously undermined in the post-GFC period. New tools are needed in both regions. Practical implications - Monetary policy transmission via bank interest rates in both HK and Macao are no longer effective after the outbreak of the GFC. Social implications - Effort to stimulate the economy and/or control inflation will be hampered. Originality/value - To the best of the authors’ knowledge, this is the first study to examine the impact of the GFC on the effectiveness of monetary policy transmission in HK and Macao.

Keywords: Error correction model; Monetary policy transmission; Hong Kong banks; Interest rate pass-through; Macao banks (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:cfripp:cfri-08-2021-0172

DOI: 10.1108/CFRI-08-2021-0172

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