Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence 
from Eastern European Countries

by Su, Chi Wei & Chang, Hsu Ling
Published in Romanian Journal of Economic Forecasting
, 2010, volume 13 issue 2, 165-175

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This study carries out an examination of the potential non-linear cointegration between the lending and deposit rates of eight Eastern European countries using the threshold models by Enders and Granger (1998) and Enders and Siklos (2001). Based upon our adoption in this study of the threshold error-correction model (TECM), we find solid evidence of an asymmetric price transmission effect between the lending and deposit rates. Thus, our results reveal that there are indeed such long-run non-linear cointegration relationships between the lending and deposit rates in these Eastern European countries. Furthermore, we go on to successfully capture the dynamic adjustment of the spread.

Keywords: investment, uncertainty, irreversibility, economic instability, inflation,
exchange rate

JEL Classification:
C22, E43, G12