Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149078
Authors: 
Popiel, Michal
Year of Publication: 
2015
Series/Report no.: 
Queen's Economics Department Working Paper 1352
Abstract: 
This paper analyzes pass-through from money market rates to consumer retail loan and deposit rates in Canada from 1983 to 2015 using a nonlinear vector error-correction model. In contrast to empirical frameworks used in previous studies, this model permits estimation of long-run pass-through coefficients while simultaneously accounting for asymmetric adjustments and short-run dynamics. It also allows testing of commonly made assumptions such as exogeneity of the market rate. I find that pass-through was complete for all rates before the financial crisis although only after the mid 1990s for the 1 year mortgage rate. Since the end of the 2008-09 recession, pass-through remains complete in the mortgage market but has significantly declined for deposit rates. Furthermore, many rates adjust asymmetrically but the direction of rigidity differs among rates and time periods.
Subjects: 
Interest rate pass-through
cointegration
asymmetric adjustment
nonlinear vector error-correction model
JEL: 
C32
E43
E52
G21
Document Type: 
Working Paper

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