Dynamic lag structure of deposits and loans interest rates and business cycles formation
Abstract
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<jats:title content-type="abstract-subheading">Purpose</jats:title>
<jats:p>This paper aims to study the structural dynamic behaviour of the depositors, banks and investors and the role of banks in the business cycles. The authors test the hypothesis: do banks’ behaviour make oscillations in the economy via interest rate?</jats:p>
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<jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title>
<jats:p>The authors dichotomized banking activities into two markets: deposit and loan. The first market forms deposit interest rate, and the second market forms credit interest rate. The authors show that these two types of interest rates have non-synchronized structures, and that is why money sector fluctuation starts. As a result, the fluctuation is transferred to the real economy through saving and investment functions.</jats:p>
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<jats:title content-type="abstract-subheading">Findings</jats:title>
<jats:p>The empirical results show that in the USA, the banking system creates fluctuations in money and real economy, as well as through interest rates. Short-term interest rates had complex roots in their characteristic, while medium and long-term interest rates, though they were second-order difference equations, had real characteristic roots. However, short-term interest rates are the source of oscillation and form the business cycles.</jats:p>
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<jats:title content-type="abstract-subheading">Research limitations/implications</jats:title>
<jats:p>The authors tested the hypothesis for USA economy, while it needs to be tested for other economies as well.</jats:p>
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<jats:title content-type="abstract-subheading">Practical implications</jats:title>
<jats:p>The results show that though the source of fluctuations in the real economy comes from short-term interest rates, medium- and long-term interest rates dampen real economy fluctuations and also work as economic stabilisers.</jats:p>
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<jats:title content-type="abstract-subheading">Originality/value</jats:title>
<jats:p>Regarding the applied method, the topic is new.</jats:p>
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