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The interest rate pass-through of the Portuguese banking system: characterization and determinants

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  • Paula Antão

Abstract

Using micro level data, this work characterizes the interest rate pass-through in loan and deposit retail rates of the Portuguese banking system. It concludes that the long-run impact of a change in money market rates on loans is typically around one while it is smaller than one for deposits. Moreover, differences between the long run coefficients for the corporate and household sectors also emerge. Results on the speed of adjustment show that, in general, deposit interest rates adjust faster than loan interest rates. The determinants of the heterogeneous behavior of banks in terms of interest rates’decisions are also studied. Capital and liquidity characteristics of banks turn out to be non-significant while market share proves to contribute to a slower speed of adjustment in both loan and deposit interest rates.

Suggested Citation

  • Paula Antão, 2009. "The interest rate pass-through of the Portuguese banking system: characterization and determinants," Working Papers w200905, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w200905
    as

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    File URL: https://www.bportugal.pt/sites/default/files/anexos/papers/wp200905.pdf
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    References listed on IDEAS

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    1. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
    2. Mojon, Benoît & Valla, Natacha & de Bondt, Gabe, 2005. "Term structure and the sluggishness of retail bank interest rates in euro area countries," Working Paper Series 518, European Central Bank.
    3. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 136, European Central Bank.
    4. Ferre De Graeve & Olivier De Jonghe & Rudi Vander Vennet, 2004. "The Determinants of Pass-Through of Market Conditions to Bank Retail Interest Rates in Belgium," Working Paper Research 47, National Bank of Belgium.
    5. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
    6. Michiel van Leuvensteijn & Christoffer Kok Sørensen & Jacob A. Bikker & Adrian A.R.J.M. van Rixtel, 2013. "Impact of bank competition on the interest rate pass-through in the euro area," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1359-1380, April.
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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