Thesis-Presentation-PPT.ppt

*,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Thesis Presentation PPT,PRESENTATION OUTLINE,Research Objectives,Scope of Study,Introduction,1,Literature Review,2,Research Methodology,3,Econometric Model,Data Analysis,4,Conclusions and Recommendations,5,5,2,INTRODUCTION,Interest Rate Transmission Channel,Inflation Rate Targeting,Interest Rate Pass-through,Short Term Pass-through,Long-term Pass-through,Problem Statement and Research Questions,Scope of Study,Research Significance and Rationale,3,Interest Rate Channel&Inflation Targeting,Source:Bank of Thailand website:,www.bot.or.th,INTRODUCTION Contd,4,Interest Rate Pass-through:,The degree and the speed of adjustment for retail bank rates to monetary policy interest rate.,Short Term Pass-through,Sluggish and incomplete Pass-through.,1,Long Term Pass-through,Normally Close to 1 i.e 100%Pass-through,Interest Rate Pass-through,1.Sander and Kleimier(2000,2002,2004a,2004b),INTRODUCTION Contd,5,How effective is the interest rate transmission mechanism in selected ASEAN Countries?,Are Pass-through rates same for all ASEAN Countries?.,How integrated is Banking Market in ASEAN?,Whether pass-through is dependent on the type of bank products under study?.,Problem Statement and Research Questions,INTRODUCTION Contd,6,The study focus is on the analysis of the short-term and long-term Pass-through for the following ASEAN countries to explain the level of retail market integration in the region.,Philippines,Thailand,Indonesia,Singapore,Malaysia,Scope of Study,INTRODUCTION Contd,7,Research:Significance and Rationale,No Past studies on the ASEAN retail banking market integration and cross comparison for the interest rate Pass-through among different countries.*,Increased focus on having a converged economy and a common financial structure for ASEAN.,*To the best of my knowledge,no such research work has been published in any of the,major literature sources,INTRODUCTION Contd,8,Interest Rate Pass-through,Two Stages.,*,Policy rate Money Market Rates(Short and long term),MM rate Short-term/long-term deposit/loan rate,Two Approaches,Cost of Fund Approach,Monetary Policy Approach,LITERATURE,REVIEW,*Balzs et-al(2006),9,Cost of Fund Approach,*,Best way to describe the second stage of the interest rate pass-through,MM rate Short-term/long-term deposit/loan rate,Factors,Banks reliance on Money Market for fund lending,MM investment acts as opportunity costs for banks,MM acts as bank competitor for the consumer savings,Proxy Rate,Using MM rate of equal maturities,*DeBondt(2005),LITERATURE,REVIEW Contd,10,Monetary Policy Approach,*,It looks directly at the relationship between policy rates and retail banking(deposit and loan)rates.,Policy rate short-term/long-term deposit rate,Policy rate short-term/long-term lending rate,Proxy Rate,Using Monthly(short term)money market rate,*Sander and Kleimeier(2004a),LITERATURE,REVIEW Contd,11,Factors Influencing Pass-through,Demand Elasticity for bank products,Week competition in the financial sector,Macroeconomic Conditions,Degree of Pass-through Economic growth,Degree of Pass-through Inflation rate,Degree of Pass-through 1/interest rate volatility,Outcomes,Not complete Pass-through in Long run,Sluggish Pass-through in short run,Menu costs,Maturity mismatch for bank products.*,Customer relationship,*Weth,(2002).,LITERATURE,REVIEW Contd,12,Pass-through Analysis in the Recent Literature,Individual Country behavior.,1,Cross-country behavior.,2,Policy Rate Proxy Choice.,Difference in the use of Econometric Model,Cointegration-Single Equation ECM Approach.,3,VAR Approach.,4,Time series vs Panel Data Analysis,Difference in the Time-period covered for analysis,Common Aim:,Discovering the degree and speed of adjustment of bank rates to changes in money market rates.,1.Cottarelli et al.(1995)for Italy,Moazzami(1999)for Canada and United States,Winker(1999)for Germany,Manzano and Galmes(1996)for Spain,and Bredin et al(2001)for Ireland,2.BIS(1994),Borio&Fritz(1994),Cottarelli&Kourelis(1995),Lowe(1994),Mozzami(1999),Mojon(2002),Kleimer and Sander(2000),Donnay and Degryse(2001),Toolsema et al.(2001),Espinosa-Vega and Rebucci(2003),and Bondt(2002).,LITERATURE,REVIEW Contd,13,Previous Research Findings,Retail rate adjustment to market interest rate changes are incomplete.,The degree and speed of Pass-through are different among different retail rates,Significant cross countries differences exist.,Enterprise Loans and Time deposits adjusts quickly,household loans and saving deposits are sticky.,*,*Sorensen and Werner(2006),LITERATURE,REVIEW Contd,14,Research Methodology,Monetary Policy Approach,Policy rate short-term/long-term deposit rate,Policy rate short-term/long-term lending rate,Proxy Rate:,Monthly(short term)money market rate,Econometric Modeling,Time series Data,Cointegration-Single Equation ECM Approach.,1,1.Mojon(2000);Heinemann and Schler(2002);Toolsema,Sturm and de Haan(2002);de Bondt,Mojon and Valla(2002);Sander and Kleimeier(2002 and 2004a-b),Gambacorta(2004)for the case of Italy;Weth(2002)for Germany;and De Graeve,De Jonghe and Vennet(2004)for Belgium.,LITERATURE,REVIEW Contd,15,RESEARCH METHODOLOGY,THEORETICAL FRAMEWORK,Interbank Offer Rate,(1 month),Fixed Deposits,(3,6,12 months),Saving Deposits,Bank Loans,(BLR),.,.,Independent,Variable,Dependent Variables,Variable Names,PHIBOR,BIBOR,SIBOR,JIBOR,KLIBOR,Variable Names,FD3,FD6,FD12,SD,BLR,16,DF-GLS,NP,KPSS,Time Series Data,Unit Root Test,Phillips-Perron,Augmented DF,Dickey-Fuller,H0:Yt I(1),H1:Yt I(0),H0:Yt I(0),H1:Yt I(1),Non-Stationarity,Stationarity,VAR in Level,Orders of Integration,RESEARCH METHODOLOGY,ECONOMETRIC MODEL,Difference,ARDL Bounding Test,E-G,J-J,H-I KPSS,The same,Cointegration Test,17,Model Specification,Cointegration Test,No,VAR in differ,Yes,UECM,(Pesaran et al.,2001),VECM,Unit Root Test,Stationarity,VAR in Level,EG,JJ,KPSS,ARDL,RESEARCH METHODOLOGY Contd,ECONOMETRIC MODEL Contd,18,RESEARCH METHODOLOGY Contd,Sources of Data,DataBase,Website,Monitory Authority of Singapore,www.mas.gov.sg,Bank Negara Malaysia,www.bnm.gov.my,Bank of Thailand,www.bot.or.th,Central Bank of Philippines,www.bsp.gov.ph,Bank Indonesia,www.bi.go.id,Bloomberg,Econometric Software Packages:,EViews,SPSS.,19,Five ASEAN Countries,PhilippinesThailandSingapore,Indonesia Malaysia,Five Banking Products,Fixed Deposits(3mth,6mth,12mth)Saving DepositLoans(Lending Rate),Four Tests,Unit Root Tests,Level of Integration Tests,Cointegration,Tests,Error Correction Modeling,DATA ANALYSIS,20,Unit Root Test and Level of Integration:,All interest rate series are Non Stationary and I(1).,Cointegration Tests:Both Grangers and Johansens Test.,Error Correction Modeling.,DATA ANALYSIS ContdPhilippines,Pass-through Stats,Johanson,Granger,Long Term,Short Term,Long Term,Short Term,Markup,Degree of Pass-through,Rate of Adjustment,Markup,Degree of Pass-through,Degree of Pass-through,Rate of Adjustment,FD3,0.3462,0.7654,-0.2334,0.8426,0.6189,0.2779,-0.3170,FD6,0.6215,0.7992,-0.3042,0.8693,0.6132,0.0737,-0.3378,FD12,0.8963,0.8818,-0.2214,0.5796,0.6969,0.1736,-0.2950,SD,2.0520,0.8049,-0.3002,-0.7275,0.6394,0.1137,-0.3460,BLR,-6.3567,0.4477,-0.4745,7.0629,0.3599,0.0815,-0.4990,21,Unit Root Test and Level of Integration:,All interest rate series are Non Stationary and I(1).,Cointegration Tests:Johansens Test.,Error Correction Modeling.,DATA ANALYSIS ContdThailand,Pass-through Stats,Johanson,Granger,Long Term,Short Term,Long Term,Short Term,Markup,Degree of Pass-through,Rate of Adjustment,Markup,Degree of Pass-through,Degree of Pass-through,Rate of Adjustment,FD3,-0.1115,0.6978,-0.0579,1.0512,0.3692,0.1438,-0.0581,FD6,-0.1101,0.7156,-0.0602,0.9365,0.4267,0.1643,-0.0620,FD12,0.0557,0.8650,-0.0453,1.0659,0.4728,0.1818,-0.0488,SD,-0.8352,0.1441,-0.0241,1.7463,-0.1754,0.0216,-0.0231,BLR,-4.5544,0.7609,-0.0492,5.8624,0.3047,0.0932,-0.0501,22,Unit Root Test and Level of Integration:,All interest rate series are Non Stationary and I(1).,Cointegration Tests:Johansens Test.,Error Correction Modeling.,DATA ANALYSIS ContdSingapore,Pass-through Stats,Johanson,Granger,Long Term,Short Term,Long Term,Short Term,Markup,Degree of Pass-through,Rate of Adjustment,Markup,Degree of Pass-through,Degree of Pass-through,Rate of Adjustment,FD3,0.4788,0.6899,-0.0189,0.5652,0.1153,0.0599,-0.0208,FD6,0.5377,0.8244,-0.0180,0.7645,0.1077,0.0587,-0.0198,FD12,0.1514,0.7430,-0.0206,0.9681,0.1264,0.0732,-0.0218,SD,0.1746,0.3708,-0.0227,0.3718,0.0697,0.0393,-0.0231,BLR,-5.3294,0.0485,-0.0383,5.3200,0.0538,0.0423,-0.0349,23,Unit Root Test and Level of Integration:,All interest rate series are Non Stationary and I(1).,Cointegration Tests:Both Johansens and Grangers Test.,Error Correction Modeling.,DATA ANALYSIS ContdIndonesia,Pass-through Stats,Johanson,Granger,Long Term,Short Term,Long Term,Short Term,Markup,Degree of Pass-through,Rate of Adjustment,Markup,Degree of Pass-through,Degree of Pass-through,Rate of Adjustment,FD3,1.0897,1.0436,-0.2866,-0.1158,0.9578,0.1611,-0.2832,FD6,0.4446,1.0026,-0.1911,1.3105,0.8469,0.0941,-0.1871,FD12,-1.1185,0.9231,-0.1770,3.5308,0.7089,-0.0181,-0.1770,SD,2.4890,0.7408,-0.0562,-0.2605,0.5383,0.0402,-0.0569,BLR,-8.8189,0.5999,-0.1129,11.2670,0.3825,0.0215,-0.1092,24,Unit Root Test and Level of Integration:,All interest rate series are Non Stationary and I(1).,Cointegration Tests:Johansens Test(10 mth lag).,Error Correction Modeling.,DATA ANALYSIS ContdMalaysia,Pass-through Stats,Johanson,Granger,Long Term,Short Term,Long Term,Short Term,Markup,Degree of Pass-through,Rate of Adjustment,Markup,Degree of Pass-through,Degree of Pass-through,Rate of Adjustment,FD3,-3.1089,0.0176,-0.0415,3.1311,0.0103,0.2692,-0.0307,FD6,-2.0261,0.3861,-0.0454,2.6923,0.1705,0.3398,-0.0357,FD12,-4.9772,0.3661,-0.0418,4.4972,-0.2109,0.3093,-0.0312,SD,-91.0116,28.8324,0.0007,4.6213,-0.8789,0.1204,-0.0024,BLR,-3.1920,1.0484,-0.0383,4.7960,0.5295,0.3808,-0.0409,25,CONCLUSIONS,1.Interest rate Pass-through:Cross Country Comparison,Indonesia,Highest pass-through rate.,Rate of adjustment is around 20%per month for fixed deposits,6%for saving deposits and 11%for the lending rates respectively.,indicates a highly efficient interest rate transmission mechanism and a very open economy.,Philippines,Long term pass-through rate is high.,Degree of pass-through rate increases with maturity of fixed deposit.,Rate of adjustment is 23%per month for fixed deposits,30%for saving deposits and 47%for the lending rates respectively,.,Interest rate transmission mechanism is quite effective with banks playing a pivotal role in the transmission of monetary policy.,26,CONCLUSIONS Contd,1.Interest rate Pass-through:Cross Country Comparison,Thailand,Effective long term transmission of interest rate but short run speed adjustment is sluggish.,short term adjustment rate of 5-6%for fixed deposits and lending rates,but 2%for saving deposits.,saving deposits are quite sticky and they do not change quickly in response to the policy rate changes,.,Singapore,Monetary policy is not entirely based on inflation targeting.,long-term pass-through is quite high(0.70)for fixed deposit rates but quite low for saving deposits(0.37)and lending rates(0.048).,indicates interest rate transmission mechanism in Singapore is not effective when compared to other ASEAN countries.This can be due to high-switching costs for consumers,high competition in banking industry and their state policies.,27,CONCLUSIONS Contd,1.Interest rate Pass-through:Cross Country Comparison,Malaysia,Lowest pass-through rate among ASEAN Countries,Often series were cointegrated using a long lag,indicating an inefficient interest rate channel,Long term pass-through rate for fixed deposits was found to be 1%-36%and short term rate of adjustment is also at 4%.,Does not imply that Malaysian banking and finance market is particularly inefficient.It can be indicative of a very high degree of competition in banking market or high degree of state control over banking sector.,28,CONCLUSIONS Contd,2.Interest rate Pass-through:Cross Product Comparison,Fixed deposits,Higher long term Pass-through and higher speed of adjustment in the short run,Long term multiplier is closer to one for shorter maturity rates,Saving deposit and lending,Sticky and do not move quickly,Consistent with economic theory and past literature,29,CONCLUSIONS Contd,3.Banking Market Integration in ASEAN,High degree of heterogeneity of pass-through of market interest rates to banking interest rates.,Both the long-run multipliers and the speed of adjustment coefficients are different between various banking products across ASEAN.,Lack of Integration of retail banking sector in ASEAN.,Low level of banking market integration will make it difficult for countries to effectively consolidate their banking sector.,30,RECOMMENDATIONS,In order to achieve effective banking market integration,the reason behind Pass-through rate differences should be analyzed and addressed.(banking system,market competition,consumer behavior etc).,Further research Potential:,Finding ways to close the gap between interest rate transmission behaviors for the different countries.,Studying the reason behind the persistence heterogeneity in various banking products,Extending this pass-through research for the selected countries on the basis of common foreign currency based banking products.,31,Thank You!,32,