UM E-Theses Collection (澳門大學電子學位論文庫)

check Full Text

A study on the effectiveness of monetary policy via interest rate pass-through channel : evidence from the U.S.

English Abstract

With the recovering momentum of the U.S. economy, the era of ultra-low interest rate is likely going to an end as signaled by the Federal Reserve’s action of tapering the Quantitative Easing scheme. In such context, it is of interest to study how the retail interest rates will react to the change of policy rates. This study first investigates the long-term relationship between the policy rate and the retail rates. It finds that the long-run interest rate pass through is incomplete; the degree of pass-through for lending rates, in particular, is less than that for deposit rates. Secondly, it devotes to examine the short-term dynamics of retail rate changes in response to policy rates by adopting error correction model. It finds evidence that lending rates are relatively rigid as change of fed fund rate will not have instant impact on lending rates. On the other hand, this study also documents that the adjustment speed of fixed deposit rate varies across different products. Those with longer maturity tends to adjust slower that those with shorter maturity. On average, it takes about 46 weeks for the fixed deposit rate to adjust to their long-run equilibrium. More importantly, by breaking the whole study period into 3 sub-periods, this study captures the movement divergence between the fed fund rate and the retail rates in the post-crisis period, which supports the argument that banks intend to set retail rates based on their expectations on policy rates. To sum up, this paper concludes that the raise of the U.S. policy rate in the future will not cause sharp increase in the retail rates, especially the lending rates. Hence, the financial burden to the borrowers unlikely becomes much heavier.

Issue date



Tam, Kei Pan


Faculty of Business Administration


Department of Finance and Business Economics


M. Sc.


Monetary policy -- United States

Interest rates -- United States

Files In This Item

Full-text (Internet)

1/F Zone C
Library URL