The Emerging BRIC Economies: Evidence from the Interest Rate Transmission Mechanism

Transcription

1 The Emergng BRIC Economes: Evdence from the Interest Rate Transmsson Mechansm PRODROMOS VLAMIS Senor Research Fellow, Hellenc Observatory, LSE Unversty of Cambrdge, UK STELIOS KARAGIANNIS Centre for Plannng & Economc Research, Greece YANNIS PANAGOPOULOS Centre for Plannng & Economc Research, Greece HELLENIC OBSERVATORY POLICY & RESEARCH SEMINAR SERIES Tuesday 2 March,

2 Introducton Contents Data Theoretcal Framework Econometrc Methodology Emprcal Results Conclusons 2

3 Introducton Motvaton Unvel the exstence and mportance of an nterest rate pass through behavour n the BRIC economes. Purpose Analyse how effectvely the wholesale rates (central bank & nterbank money market rates) are transmtted to the retal rates (depost & lendng rates). Analyse how the monetary transmsson process works and whether ther responses to upward/downward nterest rate changes are symmetrc or asymmetrc. 3

4 Contrbuton GETS model tests the exstence of symmetrc or asymmetrc transmsson behavour between the examned varables and make nferences about the relatve mportance of the two dfferent polcy vehcle varables. 4

5 Lterature Revew The ssue of nterest rate pass-through (PT) adjustment process has been undertaken by a number of scholars such as : Wang and Th (2007), Payne and Waters (2007), Chons and Leon (2006), Hofmann (2006), Sander and Klemeer (2004), Atesoglou (2003-4), Angelon and Ehrman (2003), Burgstaller (2003), De Bondt (2002), Petturson (2001), Toolsema, Sturm, and De Haan (2001), Bredn, Ftzpatrck, and O Relly (2001) and Mojon (2000). 5

6 Data Table 1:Economy & Income, GDP (mllon $) GDP (per capta) GDP per cent of global Populaton (mllon ) Brazl 704, , Russa 571, , Inda 665, ,071.6 Chna 1,877, , ,292.2 BRIC Total 3,818, , ,690.6 USA 11,451, , EMU 8,622, , Japan 4,280, , World 39,338, ,

7 Data Data used for the BRIC countres are collected from the Internatonal Fnancal Statstcs produced by the Internatonal Monetary Fund (IMF). We use monthly data for the BRIC economes. As far as the retal rates s concerned, we use the depost rate ( D ) and the lendng rate ( L ), correspondngly. Note that data s not avalable regardng the Indan and Chnese MM rate ( mm ). 7

8 Theoretcal Framework k t = c ρ Retal,t j λ Wholesale,t θ et 1 where : k n R t = c R t j, κ, µ W, t et and j = 1 = 1 Retal, j= 1 = 1 n retal stands for the dfferent loan and depost rates (e.g. the prme loan rates, the tme depost rates, etc ) and wholesale stands for the C.B. or M-M rates (e.g. the overnght rate, the 3- month M-M rates, the dscount rates, the treasury bll rates etc). u t Theµand λ are long-run and short-run «elaststes» respectvely (or rgdtes or sluggshness). 8

9 Econometrc Methodology We choose to mplement the LSE/Hendry General to Specfc model (GETS) for the PT process (see Rao and Rao (2005), Rao and Sngh (2006)). Advantages: (1) t can be used to test the exstence of symmetrc or asymmetrc transmsson behavour between the examned varables. (2) make nferences about the relatve mportance of the two dfferent polcy vehcle varables CB rate and MM rate- that regulatory authortes should montor and target. 9

10 = The LSE/Hendry General to specfc model (GETS) R t j3 0 j1, = β, β W, t = 1 R t, = W t R t j2, β j4 1 β R, t = 0 W, t R, t θ (, θ (, - φ 0 - φ 1, φ 2T ) t-1 W t, - φ 0 - φ 1 R t R t W t W t, φ 2T ) t-1 ξ t Through ths GETS model we have the comparatve advantage that we can jontly and smultaneously test the long run rgdty effects (φ s coeffcents) as well as the θ andθ - symmetrc/asymmetrc coeffcents. 10

11 Emprcal Results for Brazl and Russa Table 9: Brazlan Rgdtes Estmates Dependent varable P-T varable Depost Rates CB,t 1 ) ( D, t CB,t 1 Loan Rates CB,t 1 ( L, t ) CB,t 1 Depost Rates MM,t 1 ( D, t ) MM,t 1 Loan Rates MM,t 1 ( L, t ) MM,t 1 L-R rgdtes Table 10: Russan Rgdtes Estmates Dependent varable Depost Rates ) ( D, t P-T varable CB,t 1 CB,t 1 CB,t 1 Loan Rates ) ( L, t Depost Rates ) ( D, t Loan Rates ) ( L, t CB,t 1 MM,t 1 MM,t 1 MM,t 1 MM,t 1 L-R rgdtes

12 Emprcal Results for Inda and Chna Table 11: Indan Rgdtes Estmates Dependent varable Depost Rates ) ( D, t Loan Rates ) ( L, t P-T varable CB,t 1 CB,t 1 CB,t 1 CB,t 1 L-R rgdtes Table 12: Chna Rgdtes Estmates Dependent varable Depost Rates ) ( D, t Loan Rates ) ( L, t P-T varable CB,t 1 CB,t 1 CB,t 1 CB,t 1 L-R rgdtes

13 Emprcal Results (Asymmetres) T a b l e 1 3 : T h e A s y m m e t r y r e s u l t s f o r B r a z l M o d e l C B v s. D H y p o t h e s s H 0 : ( θ ) * θ ' = θ B o t h a r e s t a t s t c a l l y n s g n f c a n t s R e s u l t - C B v s. L m m v s. D m m v s. L O n l y t h e n e g a t v e c h a n g e ( ) s s t a t s t c a l l y s g n f c a n t B o t h θ ' s a r e s t a t s t c a l l y n s g n f c a n t T a b l e 1 4 : T h e A s y m m e t r y r e s u l t s f o r R u s s a M o d e l C B v s. D B o t h θ H y p o t h e s s H 0 : ( θ ) * θ ' s = θ n e g a t v e ( - ) a s y m m e t r y n e g a t v e ( - ) a s y m m e t r y - R e s u l t a r e s t a t s t c a l l y n s g n f c a n t - 2 C B v s. L O n l y t h e n e g a t v e θ c h a n g e ( ) s s t a t s t c a l l y s g n f c a n t n e g a t v e ( - ) a s y m m e t r y m m v s. D s y m m e t r y m m v s. L n e g a t v e ( - ) a s y m m e t r y 13 2

14 Emprcal Results (Asymmetres) Table 15: The Asymmetry results for Inda H ypothess M odel H 0 : ( Result θ = θ )* CB vs. D - - CB vs. L Only the negatve θ change ( ) s statstcally sgnfcant negatve (-) asymmetry 2 14

15 Concludng Comments Rgdtes ssue The emprcal results for Brazl, Russa and Inda are mxed regardng the monetary transmsson process and the PT completeness. The results show that although rgdtes n the transmsson process are present, sgnfcant varatons exst as well as non- PT completeness across the three economes. It seems that there s a common result for Brazl, Russa and Inda regardng ther PT behavor; CB rate decreases are transmtted to the loan rates. Regardng Chna, our GETS econometrc methodology does not produce any results at all for the PT monetary transmsson process (no changes n the CB rate for prolonged tme 15 perods).

16 Asymmetres ssue Concludng Comments Asymmetry results exst for Brazl, Russa and Inda. Results favor Customer Reacton Hypothess (Hannan and Berger, 1991) for the Brazlan, Russan and Indan bankng sector; bank managers are happy to transmt central bank rate decreases to borrowers. The same apples for the transmsson of the money market rate decreases to borrowers n the Russan bankng system. Results favor Collusve Hypothess (Berger and Hannan, 1989; Hannan and Berger, 1991; Neumark and Sharpe, 1992) for the Brazlan bankng sector; t seems that bank managers are eager to transmt money market rate decreases to depostors. 16

17 Thank you for your attenton 17