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Does the interest rate for business loans respond asymmetrically to changes in the cash rate?

Journal Article


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Abstract


  • This article examines the dynamic relationship between the Reserve Bank of

    Australia’s (RBA’s) cash rate and the variable interest rate for lending to

    small businesses. The relationship is evaluated via an asymmetric GARCH

    model using monthly data spanning from August 1990 to October 2012.

    Our results show that a 1 percentage point increase in the cash rate results in

    an instantaneous 1.086 percentage point rise in the variable rate for small

    businesses, whereas an equivalent 1 percentage point cut only leads to a

    0.862 percentage point fall with a delay of up to 2 months. This outcome has

    obvious implications for the RBA’s monetary policy transmission

    mechanism and the effectiveness of the expansionary policy versus

    contractionary policy.

Publication Date


  • 2013

Citation


  • Valadkhani, A., Arjomandi, A. & O'Brien, M. J. (2013). Does the interest rate for business loans respond asymmetrically to changes in the cash rate?. Applied Economics Letters, 20 (9), 869-874.

Scopus Eid


  • 2-s2.0-84874337089

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=4252&context=commpapers

Ro Metadata Url


  • http://ro.uow.edu.au/commpapers/3192

Number Of Pages


  • 5

Start Page


  • 869

End Page


  • 874

Volume


  • 20

Issue


  • 9

Abstract


  • This article examines the dynamic relationship between the Reserve Bank of

    Australia’s (RBA’s) cash rate and the variable interest rate for lending to

    small businesses. The relationship is evaluated via an asymmetric GARCH

    model using monthly data spanning from August 1990 to October 2012.

    Our results show that a 1 percentage point increase in the cash rate results in

    an instantaneous 1.086 percentage point rise in the variable rate for small

    businesses, whereas an equivalent 1 percentage point cut only leads to a

    0.862 percentage point fall with a delay of up to 2 months. This outcome has

    obvious implications for the RBA’s monetary policy transmission

    mechanism and the effectiveness of the expansionary policy versus

    contractionary policy.

Publication Date


  • 2013

Citation


  • Valadkhani, A., Arjomandi, A. & O'Brien, M. J. (2013). Does the interest rate for business loans respond asymmetrically to changes in the cash rate?. Applied Economics Letters, 20 (9), 869-874.

Scopus Eid


  • 2-s2.0-84874337089

Ro Full-text Url


  • http://ro.uow.edu.au/cgi/viewcontent.cgi?article=4252&context=commpapers

Ro Metadata Url


  • http://ro.uow.edu.au/commpapers/3192

Number Of Pages


  • 5

Start Page


  • 869

End Page


  • 874

Volume


  • 20

Issue


  • 9