Bank Retail Rate Response to the Policy Rate: Time-variation, Regime-switching and Curvature

摘要: This paper explores several nonlinear aspects in the interest rate transmission mechanism on basis of a large disaggregated sample British monthly deposit and loan rates 19932005 for seven key products. The focus is adjustment speed towards long run equilibrium rate. A sizeable proportion UK deposits credit products are found to have time-varying speed, driven by policy changes. Tests based regimeswitching models indicate that has four states defined sign changes gap. magnitude also influences regime-switching manner, but this aspect less pervasive across than asymmetry. Furthermore, mainly there curvature catch-up effect ⎯ error correction disproportionately big gaps. wide variation nonlinearities uncovered financial institutions raises important questions about monetary effectiveness policy.