Retail bank interest rate pass-through: The turkish experience

Abstract

This paper intends to investigate the relationship between a money market rate and banks' retail rates by empirically examining the pass-through process in the banking system of Turkey for the period between April 2001 and June 2007. We also aim to highlight the main factors that influence the price setting behavior of banks. The main findings from symmetrical and asymmetrical error-correction models suggest that the pass through from the market rate to deposit and lending rate is complete in the long run, while in the short run lending rate shows more flexibility relative to deposit rate. In addition, there is greater rigidity in deposit and lending rate decreases than increases and retail interest rates does notadjust asymmetrically to an increase or a decrease in money market rate in Turkey