Asymmetric adjustment in the prime lending–deposit rate spread

The hypothesis that bank lending rates adjust differently to rising versus declining market rates is empirically examined. This study applies threshold autoregressive and momentum threshold autoregressive models developed by Enders & Granger [Enders, W. & Granger, C. (1998). Unit root tests and asymmetric adjustment with an example using the term structure of interest rates. Journal of Business & Economic Statistics 16, 304–311] and Enders and Siklos [Enders, W. & Siklos, P. (2001). Cointegration and threshold adjustment. Journal of Business & Economic Statistics 19, 166–176] to the prime lending–deposit rate spread. Within the context of these models, this paper provides evidence of asymmetric adjustment in the spread.