The Lending-Deposit Rate Relationship in Eastern European Countries: Evidence from the Rank Test for Non-linear Cointegration
Year: 2010 Volume: 60 Issue: 6 Pages: 534-544
Abstract: This study carries out an examination of the potential non-linear cointegration between the lending and deposit rates of eight Eastern European countries using the non-parametric rank tests proposed by Breitung (2001). Based upon our adoption in this study of the threshold error-correction model (TECM), we find solid evidence of an asymmetric price transmission effect, in both the short term and the long term, between lending and deposit rates. Thus, our results reveal that there are indeed such long-run non-linear cointegration relationships between the lending and deposit rates in these Eastern European countries. Furthermore, we go on to successfully capture the dynamic adjustment of the spread.
JEL classification: C22, E43, G12
Keywords: lending-deposit rates, rank test, non-linearity
RePEc: http://ideas.repec.org/a/fau/fauart/v60y2010i6p534-544.html
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