Convergence of retail banking interest rates to households in euro area: time-varying measurement and determinants

Title

Convergence of retail banking interest rates to households in euro area: time-varying measurement and determinants

Creator

Gupta P.; Sehgal S.

Description

This study measures time-varying progress of retail banking (to households) interest rates convergence and examines its determinants for twelve countries of the euro area, between 2003 and 2014. First, we measure convergence of interest rates using five different time-varying indicators, namely asymmetric dynamic conditional correlation (ADCC), beta convergence, sigma convergence, variance ratio, and dynamic cointegration. We then estimate panel regressions for each type of interest rate to identify the determinants of convergence over pre-crisis and crisis periods. The estimated ADCC is employed as the dependent variable and explanatory variables measure potential macroeconomic, external linkages, industry-specific, institutional and sociological determinants. The results reveal that convergence is weak and heterogeneous across sub-periods (pre-crisis and crisis), economic groups (core and periphery), product type (savings and credit) and products maturities (short, medium and long). Among the fundamental determinants, inflation, output correlation, and sociological factors strongly impact convergence, however, the explanatory power of determinants weakens during the crisis period. 2019, Springer-Verlag GmbH Germany, part of Springer Nature.

Source

International Economics and Economic Policy, Vol-17, No. 1, pp. 25-65.

Date

2020-01-01

Publisher

Springer

Subject

Core and periphery; Determinants of convergence; Euro area; Financial crisis; Panel regression; Time-varying retail banking integration

Coverage

Gupta P., Institute of Management, CHRIST (Deemed to be University), Hosur Rd, Bengaluru, 560029, Karnataka, India; Sehgal S., Department of Financial Studies, University of Delhi, South Campus, New Delhi, 110021, India

Rights

Restricted Access

Relation

ISSN: 16124804

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1007/s10368-019-00452-3

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