Asymmetric Interest Rate Pass-through and Its Effects on Macroeconomic Variables: Evidence from Thailand

Thosapon Tonghui and Jin Seo Cho ()

No 2023rwp-220, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This study employs the two-step Nonlinear Autoregressive Distributed Lag estimation method proposed by Cho, Greenwood-Nimmo, and Shin (2019) to identify the asymmetric impact of monetary policy on economic variables using monthly data from Thailand between 2001 and 2023. The primary objective is to investigate the effects of policy rate shocks on the economy. This study examines three key aspects: (i) the asymmetric pass-through of policy rates to commercial bank deposits and loan rates; (ii) pass-through variations across bank sizes; and (iii) the asymmetric macroeconomic effects on output and inflation. The empirical findings reveal the presence of asymmetry within the relationships between the variables. First, the study identifies an incomplete interest rate pass-through with deposit rates ranging from 28.1% to 102.7% and loan rates ranging from 12.7% to 89.6%. Notably, long-term upward asymmetry is observed for loan rates, whereas the evidence for deposit rates is limited. Second, regarding bank size, large banks exhibit a greater pass-through effect on loan rates, whereas small and medium-sized banks display higher responsiveness to short-term deposits or savings rates. Finally, this study provides strong evidence of long-term asymmetric macroeconomic impacts. Quantitatively, rate hikes have a more substantial effect on output growth, being 1.4 times larger than the impact of rate cuts. Conversely, rate decreases exhibit a more pronounced effect on inflation, being 3.4 times larger than the impact of rate increases. These findings suggest the presence of downward price rigidity associated with monetary policy shocks in the context of Thailand.

Keywords: Interest rate pass-through; asymmetric impact; macroeconomic effects; Nonlinear Autoregressive Distributed Lag model. (search for similar items in EconPapers)
JEL-codes: E43 E51 E52 (search for similar items in EconPapers)
Pages: 48pages
Date: 2023-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ger, nep-mac, nep-mon and nep-sea
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