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AbstractBecause of recent structural changes in the balance sheets of banks, regulatory changes in the risk‐based capital requirements, and the recent adoption of mark‐to‐market accounting changes, interest rate risk remains an important issue for commercial banks and an important regulatory concern. Market, interest rate, and foreign exchange risk are estimated for a sample of commercial banks using ordinary least squares from 1986 to 1991. Consistent with earlier studies, the estimated coefficients continue to be unstable. We find that interest rate risk decreases and foreign exchange risk increases. Moreover, the results differ depending on practices of the bank (money center, superregional, or regional). We find evidence consistent with earlier studies that theorize foreign exchange risk is explained by unhedged foreign loan exposure.

AbstractIn the context of a managed float regime, we adopt the portfolio balance view to show the effects of the net foreign assets of an economy and its gross international reserves level on interest rate differentials. We argue that the interest rate differential can be explained by three components, where the components are the expected depreciation of the domestic currency, a default risk premium, and a portfolio balance premium. Our theoretical analysis suggests that the interest differential is a convex function of the level of gross international reserves. In particular, the differential and gross reserves are inversely related at low levels of reserves, but positively at higher levels. We evaluate our framework for the case of Lebanon. We find that the differential is inversely related to both net foreign assets and gross international reserves. These findings are then confirmed with data from Indonesia and Mexico.

The terms and conditions on which bank loans are made to non-financial firms and households play a key role in the transmission of monetary policy. This paper analyses the relationship between German bank lending rates and both money market and capital market rates in the 1990s. This study reveals evidence of structural differences in the interest rate pass-through across German banks. The speed at which bank lending rates adjust to changes in market rates is related to a credit institution's size, its refinancing conditions and the extent of its business with non-banks. Large banks and banks with few savings deposits adjust their lending rates to market terms more quickly than other banks, possibly because their scope for setting interest rates is comparatively narrow. A fairly small amount of long-term business with non-bank customers, indicating the importance of relationship banking, also leads to a faster lending rate pass-through. In the short run, lending rates are stickier for banks that are largely able to cover their long-term loans to non-banks by corresponding deposits from such clients. Finally, the lending rates charged on corporate loans at a number of banks - especially those for current account credit - respond only gradually to changes in market rates. By smoothing their rates, banks appear to accept temporary fluctuations in their loan mark-up. This, in turn, tends to retard monetary policy transmission via bank rates. In the long-run relationship between lending and market rates, however, apart from a constant bank-specific mark-up, there are, in most cases, no differences across banks. This suggests that a similar long-run pass-through obtains for all interest rate reporting banks, irrespective of the adjustment process. ; Den Kreditkonditionen von Banken kommt eine bedeutende Rolle im geldpolitischen Transmissionsprozess zu. Die vorliegende empirische Studie untersucht den Zusammenhang zwischen Kreditzinsen deutscher Banken und den Bedingungen am Geld- und Kapitalmarkt in den neunziger Jahren. Die präsentierten Schätzungen unterstreichen, dass sich die Zinsreaktionen verschiedener Kreditinstitute strukturell unterscheiden. Die Studie zeigt, dass das Anpassungstempo der Kreditzinsen an veränderte Marktzinsen von der Größe der Banken, ihren Refinanzierungsbedingungen und der Bedeutung ihres Nichtbankengeschäfts abhängt. Große Institute und Banken mit einer geringen Refinanzierung durch Spareinlagen passen ihre Kreditzinsen schneller als andere Institute an Marktzinsen an, was auf einen geringeren Zinssetzungsspielraum zurückgeführt werden kann. Sind die langfristigen Einlagen- und Kreditgeschäfte mit Nichtbanken, die als Indikator für das Relationship Banking des Instituts herangezogen werden, vergleichsweise moderat, so geht dies ebenfalls mit einer zügigen Zinsreaktion einher. Bestehen dagegen starke Beziehungen zwischen der Bank und ihren Kunden, so kann sich die Bank eine verzögerte Zinsanpassung eher leisten. Schließlich reagieren Kreditzinsen derjenigen Banken in der kurzen Frist träger auf Marktzinsänderungen, die ihre längerfristigen Nichtbankenkredite großenteils durch entsprechende Nichtbankeneinlagen finanzieren können. Vor allem bei Unternehmenskrediten und hierunter besonders bei Kontokorrentkrediten reagieren die Kreditzinsen einer Reihe von Banken nur schrittweise auf veränderte Marktzinsen. Durch die Zinsglättung nehmen diese Institute vorübergehende Schwankungen ihres Zinsabstands zum Marktzins in Kauf. Dadurch verzögert sich der geldpolitische Transmissionsprozess über Bankzinsen. Sieht man von einem bankspezifischen, zeitkonstanten Zinsabstand ab, so bestätigen sich Unterschiede in der langfristigen Beziehung zwischen Kredit- und Marktzinsen in den meisten Fällen nicht. Das spricht dafür, dass alle zinsmeldenden Banken trotz unterschiedlicher Anpassungsverläufe langfristig ein ähnliches Anpassungsniveau erreichen.

The objective of this paper is to analyse the impact of
monetary policy (MP) announcements on market interest rates at different
nine maturities (1/Week, 2/Week, 1/Month, 3/Months, 6/Months, 9/Months,
1/Year, 2/Years and 3/Years) in Pakistan. The Event window of 11 days
and an estimation window of 250 days have been used for analysis. The
study did not find significant evidence of ARCH effect in market
interest rates at (1/Year, 2/Years and 3/Years) maturities. However,
there is evidence of significant abnormal returns which shows a positive
impact of monetary policy announcements on market interest rates at
different nine maturities. Keywords: Monetary Policy, Market Interest
Rates, Normal Rates, Abnormal Rates, GARCH, ARIMA

Purpose
This paper aims to examine the relationship between monetary policy and market interest rates. This paper examines the efficiency of interest rate channel used in monetary regulation as well as implementation of monetary policy under low interest rates. This paper examines and reviews the scientific literature published over the past 30 years to determine primary research areas, to summarize their results and to identify appropriate measures of monetary policy to be used in practice in changing economic environment.


Design/methodology/approach
This paper reviews 94 studies focused on the relationship between monetary policy and market interest rates in terms of meeting the goals of macroeconomic regulation. The articles are selected on the basis of Scopus citation and bibliometric analysis. A major feature of this paper is the use of text analysis (data preparation, frequency of terms and collocations use, examination of relationships between terms, use of principal component analysis to determine research thematic areas). Using the method of principal component analysis while studying abstracts this paper reveals thematic areas of the research. Thus, the conducted text analysis provides unbiased results.


Findings
First, this paper examines the whole complex of relationships between monetary policy of central banks and market interest rates. Second, this research reviews a wide range of literature including recent studies focused on specific features of monetary policy under low and negative rates. Third, this study identifies and summarizes the thematic areas of all the researches using text analysis (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability). Finally, this paper presents the most important findings of the studied articles related to the current situation and trends on the financial market as well as further research opportunities. This paper finds the principal results of studies on significant issues of monetary policy in terms of its efficiency under low interest rates, influence of its instruments on term structure of interest rates and role of banking sector in implementation of transmission mechanism of monetary policy.


Research limitations/implications
The limitation of the review is examining articles for the study period of 30 years.


Practical implications
Central banks of emerging economies should apply the instruments and results of the countries' monetary policies reviewed in this paper. Using text analysis this paper reveals the main thematic areas and summarizes findings of the articles under study. The analysis allows presenting the main ideas related to current economic situation.


Social implications
The findings are of great value for adjusting the monetary policy of central banks. Also, these are important for people because these show the significant role of monetary policy for the economic growth.


Originality/value
Using text analysis this paper reveals the main thematic areas (transmission mechanism of monetary policy, efficiency of zero interest rate policy, monetary policy and term structure of interest rates, monetary policy and interest rate risk of banks, monetary policy of central banks and financial stability) and summarizes findings of the articles under study. The analysis allows defining the current ideas relevant to the monetary policy of developing countries. It is important for central banks because it examines the monetary policy problems and proposes optimal solutions.