Abstract
This paper aims to investigate the interest rate pass-through of monetary policy rate to banking retail rates in Turkey by employing the asymmetric threshold autoregressive (TAR) and momentum threshold autoegressive (MTAR) procedures introduced by Enders and Siklos (2001). Over the period December 2001 to April 2011, the empirical results of asymmetric threshold cointegration analysis suggest that there exist significant and complete pass-through between policy rate and loan rates. Positive and negative departures from the equilibrium converge to long run path almost at the same speed. Pace of convergence is about two to three months for all loan rates. Policy rate has significant short run impact on loan rates. Our analysis revealed that there is no significant relationship between policy rate and bank deposit rates due to sluggish adjustment of deposit rates. Lastly, the speed and behavior of interest rate pass-through between policy rate and loan rates did not change when we encounter the effect of 2008 financial crisis. Having a banking sector dominated financial system in Turkey, the results suggest that banks adjust loan rates faster than deposit rates. This indicates that Central Bank can affect the consumption behavior of people, in other words aggregate demand through loan rates.
Highlights
The outbreak of global economic and financial crisis starting in 2008 has attracted a lot of studies, which emphasize the importance of the monetary transmission mechanism
We examined the asymmetric adjustment properties of retail banking interest rates to changes in monetary policy rate in Turkey
Since monetary transmission mechanism is highly related to efficiency of the implementation of monetary policy, analysis of interest rate pass-through is important4
Summary
The outbreak of global economic and financial crisis starting in 2008 has attracted a lot of studies, which emphasize the importance of the monetary transmission mechanism. Central banks use monetary policy rates to affect banking retail rates. Efficiency of this mechanism is important especially for countries using interest rate channel as the monetary policy transmission mechanism. Complete pass-through means that changes in policy rates are totally transferred to banking retail rates so monetary policy decisions can be implemented successfully by central banks. Such a pass-through mechanism indicates the effectiveness of interest rate channel in establishing price stability and strong banking system
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