Asymmetric dynamic conditional copula correlation and fundamental determinants of interest rate comovement
subject: ADCC GARCH; Core and periphery; Determinants of convergence; Euro area; Panel regression; Retail banking integration
description: We study time-varying interest rate comovement and its determinants for the retail banking sector in the euro area over pre-crisis and during crisis, between 2003 and 2018. The analysis is conducted for 11 euro area countries, each classified as either core or periphery. Copula Asymmetric DCC-GARCH is estimated for each country-pair to measure the dynamic interest rate correlations for deposits and loans to households. We then examine the determinants by regressing quarterly correlations on macroeconomic and cross-border linkages, banking, and sociological variables. We also assess the impact of the two crises and of policy initiatives, including negative interest rate, Single Supervisory Mechanism, and Single Regulatory Mechanism. Different panel regressions reveal limited, although varied, influence of determinants on correlations across different products, maturities, and country groups. We conclude that the intrinsic features of the retail banking industry, such as customers' trust, information asymmetry, and political influence, hinder strong interest rate convergence in the euro area. 2019-Center for Economic Integration, Sejong Institution, Sejong University, All Rights Reserved.
creator: Gupta P.; Sehgal S.
source: Journal of Economic Integration, Vol-34, No. 4, pp. 667-704.
publisher: Center for Economic Integration
date: 2019-01-01
rights: All Open Access; Gold Open Access; Green Open Access
relation: ISSN: 1225651X
format: Online
language: English
type: Article
coverage: Gupta P., CHRIST, India; Sehgal S., Department of Financial Studies, University of Delhi, South Campus, New Delhi, 110021, India