IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v43y2018icp34-47.html
   My bibliography  Save this article

Nexus between the banking sector interest rate spread and interbank borrowing rate: An econometric investigation for Bangladesh

Author

Listed:
  • Kashem, Mohammad Abul
  • Rahman, Mohammad Mafizur

Abstract

This study examines the causal relationship among Interest Rate Spread11Definition of IRS is based on the Guidelines of Entrepreneur Data Warehouse (EDW), Bangladesh Bank (BB), Statistics Department. (IRS), investor and depositor burden of IRS and interbank borrowing rate of Bangladesh for the period April 2009–November 2015. By taking care of all properties of time series data the paper has addressed the issue of short run dynamics within the long run relationship of these four variables. The empirical results show that aforementioned four variables are highly cointegrated, implying that there is a stable long run relationship among them. Similarly, the estimated error correction model shows that there is bi-directional causality among these four variables. However, Granger causality test shows that there is a unidirectional causality running from IRS and interbank borrowing rate to both investor and depositor burden of IRS and there is a bi-directional causality between IRS and interbank borrowing rate implying that when IRS increases both depositors and investors suffer and interbank borrowing rate (hence, monetary policy) has significant role to play in the reduction of IRS and its' components in Bangladesh. Our findings also confirm that Bangladesh investors bear the major portion of IRS burden.

Suggested Citation

  • Kashem, Mohammad Abul & Rahman, Mohammad Mafizur, 2018. "Nexus between the banking sector interest rate spread and interbank borrowing rate: An econometric investigation for Bangladesh," Research in International Business and Finance, Elsevier, vol. 43(C), pages 34-47.
    • Handle: RePEc:eee:riibaf:v:43:y:2018:i:c:p:34-47
    DOI: 10.1016/j.ribaf.2017.07.173
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531917303690
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2017.07.173?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Hossain, Monzur, 2012. "Financial reforms and persistently high bank interest spreads in Bangladesh: Pitfalls in institutional development?," Journal of Asian Economics, Elsevier, vol. 23(4), pages 395-408.
    3. Chu V. Nguyen, 2012. "Asymmetric responses of commercial banks to monetary policy in a transitional economy:the case of Vietnam," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(3), pages 1-9.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Kaiguo Zhou & Michael C. S. Wong, 2008. "The Determinants of Net Interest Margins of Commercial Banks in Mainland China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(5), pages 41-53, September.
    6. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    7. R. Gaston Gelos, 2009. "Banking Spreads In Latin America," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 796-814, October.
    8. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vassilis Monastiriotis & Cigdem Borke Tunali, 2020. "The Sustainability of External Imbalances in the European Periphery," Open Economies Review, Springer, vol. 31(2), pages 273-294, April.
    2. Zamani, Mehrzad, 2007. "Energy consumption and economic activities in Iran," Energy Economics, Elsevier, vol. 29(6), pages 1135-1140, November.
    3. Muhammad Shafiullah & Ravinthirakumaran Navaratnam, 2016. "Do Bangladesh and Sri Lanka Enjoy Export-Led Growth? A Comparison of Two Small South Asian Economies," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 114-132, March.
    4. Xu, Haifeng & Hamori, Shigeyuki, 2012. "Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008–09 financial crisis," Journal of Asian Economics, Elsevier, vol. 23(4), pages 344-352.
    5. Titus O. Awokuse, 2003. "Is the export-led growth hypothesis valid for Canada?," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 126-136, February.
    6. Yap, Wei Yim & Lam, Jasmine S.L., 2006. "Competition dynamics between container ports in East Asia," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(1), pages 35-51, January.
    7. Claire G.Gilmore & Brian Lucey & Ginette M.McManus, 2005. "The Dynamics of Central European Equity Market Integration," The Institute for International Integration Studies Discussion Paper Series iiisdp069, IIIS.
    8. Daniel Levy, 1995. "Investment-saving comovement under endogenous fiscal policy," Open Economies Review, Springer, vol. 6(3), pages 237-254, July.
    9. Stephen McKnight & Marco Robles Sánchez, 2014. "Is a monetary union feasible for Latin America? Evidence from real effective exchange rates and interest rate pass-through levels," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 29(2), pages 225-262.
    10. Mohcine Bakhat & Klaas WŸrzburg, 2013. "Co-integration of Oil and Commodity Prices: A Comprehensive ApproachAbstract," Working Papers fa05-2013, Economics for Energy.
    11. Mehdi Abid & Rafaa Mraihi, 2015. "Energy Consumption and Industrial Production: Evidence from Tunisia at Both Aggregated and Disaggregated Levels," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 1123-1137, December.
    12. Hande Aksöz Yılmaz, 2020. "The Impact of Foreign Trade on Immigration from Turkey to Germany: ARDL Bounds Test Approach," Journal of Economy Culture and Society, Istanbul University, Faculty of Economics, vol. 62(62), pages 123-143, December.
    13. Mohsen Bahmani-Oskooee & Taggert Brooks, 2003. "A new criteria for selecting the optimum lags in Johansen's cointegration technique," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 875-880.
    14. Özcan Karahan & Olcay Çolak, 2019. "Examining the Validity of Wagner's Law versus Keynesian Hypothesis: Evidence from Turkey's Economy," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(1), pages 117-130, March.
    15. Roberto Cellini & Tiziana Cuccia, 2013. "Museum and monument attendance and tourism flow: a time series analysis approach," Applied Economics, Taylor & Francis Journals, vol. 45(24), pages 3473-3482, August.
    16. Isabel Cortés-Jiménez & Manuel Artís, 2005. "The role of the tourism sector in economic development - Lessons from the Spanish experience," ERSA conference papers ersa05p488, European Regional Science Association.
    17. Erie Febrian & Aldrin Herwany, 2009. "Volatility Forecasting Models and Market Co-Integration: A Study on South-East Asian Markets," Working Papers in Economics and Development Studies (WoPEDS) 200911, Department of Economics, Padjadjaran University, revised Sep 2009.
    18. Pablo de la Vega & Guido Zack & Jimena Calvo & Emiliano Libman, 2024. "Inflation Determinants in Argentina (2004-2022)," Papers 2405.20822, arXiv.org.
    19. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
    20. La, Le & Mei, Bin, 2015. "Portfolio diversification through timber real estate investment trusts: A cointegration analysis," Forest Policy and Economics, Elsevier, vol. 50(C), pages 269-274.

    More about this item

    Keywords

    Interest rate spread; Interbank borrowing rate; Time series data; Bangladesh;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:43:y:2018:i:c:p:34-47. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.