Are there asymmetries in the response of bank interest rates to monetary shocks?

Leonardo Gambacorta and S. Iannotti

Applied Economics, 2007, vol. 39, issue 19, 2503-2517

Abstract: This article examines the velocity and asymmetry of the response of bank interest rates to monetary policy shocks. Using an asymmetric vector error correction model, it analyses the pass-through of changes in money market rates to retail bank interest rates in Italy in the period 1985-2002. The main results of the article are: (1) the speed of adjustment of bank interest rates to monetary policy changes increased significantly after the introduction of the 1993 Consolidated Law on Banking; (2) interest rate adjustment in response to positive and negative shocks is asymmetric in the short run, but not in the long run; (3) banks adjust their loan (deposit) rate faster during periods of monetary tightening (easing); (4) this asymmetry almost vanished since the 1990s.

Date: 2007
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Working Paper: Are there asymmetries in the response of bank interest rates monetary shocks? (2005)
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DOI: 10.1080/00036840600707241

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