Abstract
We find that the interest rate pass-through and the loan intermediation mark-up move in opposite directions and differs across the monetary policy tightening and loosening cycles. A high (low) mark-up is accompanied by a low (high) pass-through. In addition, positive repo rate changes are passed more to lending rate increase than policy rate decreases of the same magnitude. This is indicative of the asymmetric effects in the lending rate adjustment to increases and decreases in the repo rate changes. Evidence shows that the speed of correction towards equilibrium is bigger when lending rates are below the equilibrium compared to when lending rates are above the equilibrium. Lending rates adjusts upwards when below the equilibrium more quickly than adjusting downwards when they are above the equilibrium.
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Notes
- 1.
The credit conditions index is sourced from Gumata and Ndou (2018). Bank credit extension and real economic activity in South Africa.
- 2.
According to the Chan (1993) approach, the consistent estimate of the threshold is the one that yields the smallest residual sum of squares over the remaining 70%.
- 3.
Since the T-max exceeds the statistics given by Enders and Granger (1998). In addition, based on the Phi value we reject the null hypothesis of no cointegration. As shown in Table A24.2 in the Appendix the MTAR indicates the existence of a cointegration relationship and convergence in the speed of adjustment. The negative sign on the speed of adjustment indicates that the spread converges towards the equilibrium point. This means that after deviating from equilibrium, the spread returns to the long-run equilibrium above and below the equilibrium.
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Ndou, E., Gumata, N., Tshuma, M.M. (2019). Is There Evidence of Asymmetries in the Adjustment of the Lending Rate Responses to Repo Rate Changes?. In: Exchange Rate, Second Round Effects and Inflation Processes. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-13932-2_24
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DOI: https://doi.org/10.1007/978-3-030-13932-2_24
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