مقررات زدایی نرخ بهره: اثر بخشی سیاست های پولی و انعطاف ناپذیری نرخ

This paper examines the effects of interest rate regulation, and subsequent deregulation, on the efficacy of monetary policy and rigidity of retail bank deposit rates in Hong Kong. Using an error-correction model, we find that interest rate deregulation increases the efficacy of monetary policy by improving the correlation between retail bank deposit rates and market interest rates and increasing the degree of long-term pass-through for retail bank deposit rates. Our study also shows that the adjustments in retail bank deposit rates are asymmetric and rigid upwards during the regulated period, but tend to be rigid downwards during the deregulated period. The spreads between retail bank deposit rates and market rates have also tightened sharply after the removal of interest rate controls.

In this study, we examine the effects of interest rate regulation, and subsequent deregulation, on the efficacy of monetary policy and rigidity of retail deposit interest rates in Hong Kong. The topic of interest rate regulation (and deregulation) has been extensively studied in the banking literature. One area of research, for example, is on the economic rents that financial institutions extract from interest rate controls. Studies have shown that financial institutions earned substantial economic rents from deposit interest rate restrictions (Hutchison and Pennacchi, 1996 and Chan and Khoo, 1998), while the removal of deposit rate ceilings affected the stock returns of financial institutions negatively (Dann and James, 1982 and Kwan, 2003). Another area of research is on the regulatory dialectics theory (Kane, 1977 and Kane, 1981), which is about the circumvention of interest rate regulation through non-price competition and innovations in money market instruments (Eisenbeis, 1985). However, very little is known about the effects of interest rate regulation (and deregulation) on the efficacy of monetary policy and rigidity of retail interest rates, despite the large body of literature on interest rate regulation. To study these issues, we examine the case of interest rate regulation, and subsequent deregulation, in Hong Kong. One reason for studying the Hong Kong experience is that interest rate controls in Hong Kong tend to be binding. Another reason is that deposit interest rates had been regulated in Hong Kong since 1964 and was only deregulated on a staggered-basis starting from 1994. The long historical sample period allows us to conduct robust statistical tests associated with the effects of interest rate regulation and subsequent deregulation. To examine the efficacy of monetary policy during the regulated and deregulated periods, we look at the interest rate (pass-through) channel of monetary policy.1 Previous studies on the credit channel of monetary policy (Bernanke and Gertler, 1995, Gertler and Gilchrist, 1994 and Kashyap and Stein, 2000) tend to assume immediate and complete pass-through in the policy rates to retail bank deposit and loan rates. Recent studies on the interest rate channel of monetary policy, however, have shown that interest rate pass-through may not be complete and that interest rate adjustments are sluggish and may be asymmetric (Cottarelli and Kourelis, 1994, Bondt, 2002, Hofmann and Mizen, 2004, Chong et al., 2006 and De Graeve et al., 2007). Interest rate rigidity has important implications because the effectiveness of monetary policy depends on how fast and to what extent banks pass through changes in policy rate to deposit and lending rates. If there is an asymmetric rigidity in interest rate adjustments, then expansionary and tightening monetary policy can impact the economy at different pace. Also, the transmission of monetary policy will not be uniform across all sectors of the economy if the speed and magnitude of interest rate adjustments differ across both financial institutions and financial products (Chong et al., 2006). Interest rate regulation can affect the efficacy of monetary policy by impeding the adjustments of deposit and loan rates to changes in market interest rates and by introducing asymmetric rigidity to the rate adjustments process. Conversely, interest rate deregulation can have the opposite effects. In support this argument, our study shows that interest rate deregulation in Hong Kong has improved the efficacy of monetary policy actions. First, in comparison to the regulated period, we find that the correlations between retail bank deposit rates and market rates are higher during the deregulated period. This result indicates that retail bank deposit rates are more responsive to movements in market interest rates and, hence, to monetary policy actions after the removal of interest rate controls. Second, we find a significant increase in the degree of long-term pass-through for retail bank deposit rates after the removal of interest rate controls. The implication of this result is that interest rate deregulation has increased the size of the interest rate response to monetary policy actions, which in turn means that the effect on the economy will be relatively larger for a given policy action. In this study, we also provide empirical evidence on two different ways that banks can extract rents from interest rate regulation. First, banks can extract rents by paying a lower deposit rate than the prevailing competitive market interest rate. In support of this argument, we find that the mean (and median) spreads between retail deposit rates and market interbank rates contracted by as much as 69–117 basis points (29–94 basis points) following the removal of deposit rate controls in Hong Kong. Second, banks can extract rents from interest rate regulation by raising deposit rates at a much slower pace when market interest rates are rising and lowering deposit rates at a quicker pace when market interest rates are falling. Using a standard error-correction model (ECM) that allows for asymmetry in rate adjustments, we find that retail bank deposit rate adjustments tend to be asymmetric and rigid upwards when the rates were regulated, but tend to be rigid downwards during the deregulated period. Thus, the above findings also add to the literature on interest rate rigidity. Previous studies have attributed the rigidity in the interest rate adjustment process to a number of factors that include fixed menu cost, high switching cost, imperfect competition, and asymmetric information (Hannan and Berger, 1991, Scholnick, 1996, Heffernan, 1997, Dutta et al., 1999 and Chong et al., 2006). Our study indicates that a key determinant of asymmetric interest rates rigidity is interest rate regulation (and deregulation). Deposit interest rate controls enable banks to extract economic rents by adopting an upward rigidity in the deposit rate adjustment process. In contrast, deposit rate deregulation results in more intensive rate competition and, hence, downward rigidity in the deposit rate adjustment process. The remainder of the paper is organized as follows: Section 2 provides some institutional background on the interest rate regulation, and subsequent deregulation, in Hong Kong. Section 3 outlines our methodology. Section 4 discusses the data and results and Section 5 concludes the paper.

This study examines the effects of deposit interest rate regulation, and subsequent deregulation, on the efficacy of monetary policy and rigidity of retail interest rates in Hong Kong. Over the past decades, many countries had either relaxed or removed entirely regulation that imposed restrictions on interest rates because of the inefficiencies and resources misallocation arising from non-price competition, disintermediation, and mismatches in asset and liabilities. Our study provides additional evidence in favor of interest rate deregulation. There are two policy implications from this study. First, the efficacy of monetary policy or transmission mechanism is enhanced with the removal of interest rate regulation. We find that retail bank deposit rates are more closely linked to market interest rates after the removal of interest rate controls and, hence, are more responsive to monetary policy actions. More importantly, interest rate deregulation has a significant and positive impact on the long-term pass-through rate for retail bank deposit rates. This implies that for a given policy action, the effect on the economy is larger because interest rate deregulation has increased the size of the interest rate response to changes in monetary policy. Short-term dynamics analysis further shows that for a large majority of cases, where the policy rate changes are relatively small, the short-term pass-through rate has increased after the removal of interest rate controls. However, for large increases in policy rates, which are comparatively infrequent, we find that the short-term pass-through rate has declined after interest rate deregulation. Second, interest rate deregulation benefits the consumers (depositors). One benefit is from greater deposit rate competition and the downward rigidity in deposit rate adjustments. Retail bank deposit rates after interest rate deregulation tend to exhibit faster upward adjustments when the rates are below their equilibrium values and slower downward adjustments when the rates are above their equilibrium values. Another benefit is that the levels of deposit rates offered to consumers are much more competitive and closely pegged to the prevailing market interest rates after interest rate deregulation.