A comment on interest rate pass-through: a non-normal approach

  • Dong-Yop Oh
  • Hyejin LeeEmail author
  • Karl David Boulware


This paper revisits the question of interest rate pass-through from the federal funds rate to bank and open market rates from the years 1987 to 2015. We employ cointegration tests with improved testing power by using information in non-normal errors. Using this approach, we find evidence of cointegration between the federal funds rate and the prime rate, the federal funds rate and the 3-month financial commercial paper rate, but no evidence of cointegration between the federal funds rate and the 30-year conventional mortgage rate. Moreover, we estimate the degree of long-run pass-through for both the prime and commercial paper rates to be less than one. Our results confirm that there is not only significant co-movement between the federal funds rate and short-term borrowing rates, but also that interest rate pass-through, in the long run, is incomplete.


Monetary policy Interest rate pass-through Cointegration analysis Non-normal errors RALS 

JEL Classification

E52 E43 E58 C12 C22 


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of Information SystemsAuburn University at MontgomeryMontgomeryUSA
  2. 2.Accounting, Economics and Finance DepartmentTuskegee UniversityTuskegeeUSA
  3. 3.Department of EconomicsWesleyan UniversityMiddletownUSA

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