Asymmetries in the Thai lending-deposit rate spread: an econometric analysis

Chu Nguyen and Anisul Islam ()

Applied Economics Letters, 2010, vol. 17, issue 13, 1229-1236

Abstract: This study examines the asymmetric behaviour of lending-deposit rate spread in the emerging Thai economy over the period 1991:1 to 2007:1. Although both the threshold autoregressive model and the Momentum Threshold Autoregressive (MTAR) model detect asymmetries, the MTAR model is a better fit for the sample data. The finding that Thai banks exhibit faster adjustment in lending rates when the spread is widening (i.e. falling deposit rates) than when the spread is narrowing (i.e. rising deposit rates) supports the consumer reaction hypothesis of Stiglitz and Weiss. This phenomenon is the result of the 'oligopsonistic' relationship between the banks and their powerful corporate customers, and the attendant practice of the 'name'-based lending.

Date: 2010
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DOI: 10.1080/00036840902902201

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