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Loom of Symmetric Pass-Through

Department of Banking, School of Banking and Insurance, Ankara Haci Bayram Veli University, Besevler, Ankara 06500, Turkey
Economies 2019, 7(1), 11; https://doi.org/10.3390/economies7010011
Received: 1 September 2018 / Revised: 25 October 2018 / Accepted: 19 November 2018 / Published: 12 February 2019
(This article belongs to the Special Issue Impact of Macroeconomic Indicators on Stock Market)
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Abstract

This paper analyzes the effects of the real policy interest rate on the banking sector lending rate, the deposit rate, real stock prices, and the real exchange rate using the Engle Granger cointegration method (EG), the vector error-correction model (VECM), and the nonlinear vector error-correction model (NVECM) with monthly Turkish data over the period January 2002–April 2018. (1) EG results indicate bivariate cointegration relationships between the real interest rate, lending rates, and the deposit rate. The real interest rate increases all lending rates, mainly the housing rate. However, the long-run coefficient for the real exchange rate is not statistically significant. The pass-through is higher for the deposit rate than for lending rates. Moreoever, real stock prices shrink substantially where the finance sector has been affected the most. (2) VECM results indicate a cointegration relationship between all the variables except for the real exchange rate, which has a statistically non-significant pass-through coefficient. The real interest rate has a noteworthy long-run positive effect on the housing loans lending rate compared to others. The affirmative effect on real stock prices is the highest for the technology sector. The short-run effect of the real interest rate on lending rates, real stock prices and the real exchange rate are statistically non-significant except for the overall stock price index, and the vehicle loans lending rate which has a higher coefficient than the deposit rate. (3) NVECM results allow testing of eleven hypotheses and highlight the symmetric relationship and the valid pass-through effect, and reject the strong exogeneity assumption for all variables. View Full-Text
Keywords: real interest rate; symmetry; pass-through; NVECM real interest rate; symmetry; pass-through; NVECM
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Sahin, A. Loom of Symmetric Pass-Through. Economies 2019, 7, 11.

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