Nexus between the banking sector interest rate spread and interbank borrowing rate: an econometric investigation for Bangladesh

Kashem, Mohammad Abul and Rahman, Mohammad Mafizur (2017) Nexus between the banking sector interest rate spread and interbank borrowing rate: an econometric investigation for Bangladesh. Research in International Business and Finance. pp. 1-14. ISSN 0275-5319

Abstract

This study examines the causal relationship among Interest Rate Spread1 (IRS), investor and depositor burden of IRS and interbank borrowing rate of Bangladesh for the period April 2009–November 2015. By taking care of all properties of time series data the paper has addressed the issue of short run dynamics within the long run relationship of these four variables. The empirical results show that aforementioned four variables are highly cointegrated, implying that there is a stable long run relationship among them. Similarly, the estimated error correction model shows that there is bi-directional causality among these four variables. However, Granger causality test shows that there is a unidirectional causality running from IRS and interbank
borrowing rate to both investor and depositor burden of IRS and there is a bi-directional causality between IRS and interbank borrowing rate implying that when IRS increases both depositors and investors suffer and interbank borrowing rate (hence, monetary policy) has significant role to play in the reduction of IRS and its' components in Bangladesh. Our findings also confirm that Bangladesh investors bear the major portion of IRS burden.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Published online 14 July 2017. Permanent restricted access to ArticleFirst version, in accordance with the copyright policy of the publisher.
Faculty / Department / School: Current - Faculty of Business, Education, Law and Arts - School of Commerce
Date Deposited: 04 Sep 2017 02:11
Last Modified: 02 May 2018 00:15
Uncontrolled Keywords: interest rate spread, interbank borrowing rate, time series data, Bangladesh
Fields of Research : 14 Economics > 1402 Applied Economics > 140212 Macroeconomics (incl. Monetary and Fiscal Theory)
14 Economics > 1403 Econometrics > 140305 Time-Series Analysis
Socio-Economic Objective: B Economic Development > 91 Economic Framework > 9101 Macroeconomics > 910199 Macroeconomics not elsewhere classified
Identification Number or DOI: 10.1016/j.ribaf.2017.07.173
URI: http://eprints.usq.edu.au/id/eprint/33054

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