Bank interest rate adjustments: Are they asymmetric?

This paper is concerned with the asymmetric adjustments between three Austr alian bank interest rates: a bank bill rate, a loan rate and a deposit rate . A multivariate asymmetric error-correction model is applied to capture th e interplay of long-run relationships between the levels of the rates and s hort-run relationships between the changes in the rates. The empirical anal ysis, for the sample period 1990:01-2000:04, shows that interest rate adjus tments, in response to positive and negative shocks, are asymmetric in the short run, but not in the long run. In particular, the results suggest that banks adjust their loan and deposit rates, in response to a change in the bank-bill rate, at a faster rate during periods of monetary easings (negati ve changes) than during periods of monetary tightenings (positive changes).