How Do Anticipated Changes to Short-Term Market Rates Influence Banks' Retail Interest Rates? Evidence from the Four Major Euro Area Economies

摘要

In this paper, we argue that banks anticipate short-term market rates when setting interest rates on loans and deposits. In order to include anticipated rates in an empirical model, we use two methods to forecast market rates-a level, slope, curvature model, and a principal components model-before including them in a model of retail rate adjustment for four retail rates in four major euro area economies. Using both aggregate data and data from individual French banks, we find a significant role for forecasts of market rates in determining retail rates; alternative specifications with futures information yield comparable results.