Bank competition and interest rate pass-through in the BRICS economies. Issue 4 (19th August 2014)

• Record Type: Journal Article
• Authors: Fadiran, Gideon Oluwatobi; Alon, Ilan; Liu, Xiaohui
• Is Part Of: International journal of emerging markets. Volume 9:Issue 4(2014)
• Publication Date: 2014-08-19
• Subjects: Business enterprises -- Finance -- Periodicals; Investments -- Developing countries -- Periodicals; Commerce -- Periodicals; Developing countries -- Economic conditions -- Periodicals; 330.91724
• DOI: 10.1108/IJoEM-05-2011-0046
• Languages: English
• ISSNs: 1746-8809

Abstract

<abstract> <title> <x content-type="archive" xml:space="preserve">Abstract</x> </title> <sec sec-type="purpose"> <title>Purpose</title> <p>The paper examines and compares the interest rate pass-through among the BRICS (Brazil, Russia, India, China and South Africa) emerging markets.</p> </sec> <sec sec-type="design|methodology|approach"> <title>Design/methodology/approach</title> <p>The paper reviews a general literature on interest rates pass-through by applying a cointegration and asymmetric mean adjustment lag error correction methodology.</p> </sec> <sec sec-type="findings"> <title>Findings</title> <p>A symmetric adjustment is found in Russia, China and South Africa's deposit rate, while an asymmetric adjustment is found in Brazil and India's deposit rate adjustments. The presence of a customer reaction theory is found in Brazil, India, China and South Africa's deposit rate adjustments, while a collusive pricing arrangement is found in Russia. From the lending rate adjustment, a collusive pricing arrangement was found in Brazil, China and South Africa, while a customer reaction theory was found in India and Russia.</p> </sec> <sec sec-type="research limitations|implications"> <title>Research limitations/implications</title> <p>The sample period used in the study covers a period starting from the formal recognition of BRIC (2001-2010), which limits the data length. </p> </sec> <sec sec-type="practical implications"> <title>Practical implications</title> <p>The research output and implication can assist monetary policy makers, investors and consumers to monitor BRICS' central banking, commercial banking and competition behaviour, individually and as a group. The BRICS are potentially heading towards a more financially integrated bloc as multilateral agreements among members increases. This is in the form of Letters of Credit and Memorandum of Understanding. These agreements should boost intra-BRICS financial transactions, investments and trade. </p> </sec> <sec sec-type="originality|value"> <title>Originality/value</title> <p>This is, to the best of knowledge, the first analysis of BRICS interest rate pass-through using the asymmetric mean adjustment lag error correction model application.</p> </sec> </abstract>