Title: The effect of inter-country competition on interest rate pass-through in the European Union

Authors: Rishav Bista; Biniv Maskay; James W. Saunoris

Addresses: Department of Economics, University of Kentucky, Lexington, KY 40506-0034, USA ' Department of Economics, University of Kentucky, Lexington, KY 40506-0034, USA ' Department of Economics, University of Kentucky, Lexington, KY 40506-0034, USA

Abstract: Using monthly data on countries in the European Union (EU) over seven years, this study examines the pass-through of the Central Bank (CB) rate to retail lending interest rates. Recent advances in spatial econometric methods allows for relaxing the assumption of perfect competition in interest rates by specifically modelling the spatial interaction of countries within the EU. Questions concerning the effect of spatial interaction on the pass-through of the CB rate to the lending rates are of particular interest. The results indicate statistically significant spatial interaction among countries, which results in faster pass-through.

Keywords: monetary policy transmission; EU; European Union; interest rate pass-through; spatial econometrics; interest rates; modelling; spatial interaction.

DOI: 10.1504/IJMEF.2012.048735

International Journal of Monetary Economics and Finance, 2012 Vol.5 No.2, pp.169 - 182

Published online: 28 Aug 2012 *

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