Abstract
This paper illustrates asymmetries in the Russian intermediation premium as measured by the spread between the commercial lending rate and the Central Bank’s policy related rate. Empirical results have shown that the Russian intermediation premium adjusts to the threshold faster when the Central Bank’s policy related rates increase relative to lending rates as opposed to when the Central Bank’s policy related rates move in the opposite direction. The findings of this paper suggest that during the period when the Russian Federation faced formidable challenges from a sharp decline in oil prices and reduced access to international capital markets due to Western sanctions, the Central Bank of Russia was not effective in utilizing countercyclical monetary policy to achieve macroeconomic objectives and commercial banks exhibited predatory pricing behavior.
Highlights
Financial intermediation is a critical facilitator of investment and economic growth (Schumpeter, 1912; Patrick, 1966; McKinnon, 1973)
Breitung's nonparametric rank tests calculates to be 0.000051, a result which rejects the null hypothesis of no cointegration, while the score test calculates to be 6.73092, which rejects the null hypothesis of nonlinearity. These results strongly indicate that the Russian lending rates and Central Bank’s policy related rates are linearly cointegrated
The estimation results, equation (7), show that the Central Bank’s policy related rate responds to both its own lagged changes and lagged changes of the lending rates. These findings suggests a unidirectional Grangercausality from the Russian commercial banks’ lending rate and the Central Bank’s policy related rate in the short run, and reveal that the the Central Bank of the Russian Federation looked at its past policy related rates and past commercial banks’ lending rates to formulate and implement its current policy related rates in the short run
Summary
Financial intermediation is a critical facilitator of investment and economic growth (Schumpeter, 1912; Patrick, 1966; McKinnon, 1973). This study used the monthly lending rates and the Central Bank’s policy related rates from the Russian commercial banks from 2011:02 to 2016:11 (where data is available), reported by the International Monetary Fund.
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