Asymmetric adjustments in the spread of lending and deposit rates: Evidence from extended threshold unit root tests

Junsoo Lee (), Mark Strazicich () and Byung Chul Yu

Review of Financial Economics, 2013, vol. 22, issue 4, 187-193

Abstract: In this paper, we test for asymmetric adjustments in the spread of the U.S. prime lending rate and 3‐month certificate of deposit rate. In doing so, we extend the pioneering threshold unit root tests of Enders and Granger (1998) to more flexible models where the deterministic terms and short‐run dynamics, in addition to the persistent parameters, can differ in two regimes. While some previous works have tested for asymmetric adjustments in the spread of lending and deposit rates using threshold unit root tests, the deterministic terms and short‐run dynamics were assumed to be symmetric, which can lead to bias and less accurate conclusions if these conditions do not hold. Overall, we find that the spread in lending and deposit rates is stationary but adjustment to the equilibrium is asymmetric. In particular, we find more rapid adjustment when the spread is narrowing below a threshold level than when widening above this level. Several theoretical implications are suggested.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1016/j.rfe.2013.08.002

Related works:
Journal Article: Asymmetric adjustments in the spread of lending and deposit rates: Evidence from extended threshold unit root tests (2013)
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:wly:revfec:v:22:y:2013:i:4:p:187-193

Access Statistics for this article

More articles in Review of Financial Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().