ABSTRACT
This chapter investigates transmissions and interdependencies in the bank lending and borrowing markets across eleven countries – Belgium, Canada, Denmark, France, Germany, Japan, the Netherlands, Sweden, Switzerland, the USA and the UK. Monthly time-series of Prime and 3-month negotiable certificate of deposits rates spanning the interval January 1972 to December 1992 are fitted to a vector autoregressive model. The empirical results are indicative of significant bilateral interactions among the bank lending and borrowing markets. The German rates are found to have a significant influence on the European bank lending and borrowing markets, but are themselves Granger-influenced by the US rates. The German prominence in the European bank market is further corroborated by the impulse response functions. Interestingly, the Japanese rates are found to be relatively insulated from the changes in the external rates. The results generally suggest that both banks and monetary authorities should be aware of the credit market conditions in the external markets, since their decisions at the micro and macro levels reverberate throughout the global markets.
