Is central bank news good news for loan interest rates volatility?

•Enhanced central bank transparency lowers loan interest rates volatility in a New Keynesian DSGE model.•This theoretical inverse relationship holds empirically for G-7 economies.•Tight macroprudential regulations strengthen central bank transparency's effect on loan interest rate stability.•Ce...

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Bibliographic Details
Published in:Economics letters 2023-12, Vol.233, p.111411, Article 111411
Main Authors: Chrysanthopoulou, Xakousti, Tsioutsios, Alexandros, Dimitriou, Dimitrios
Format: Article
Language:English
Subjects:
Bank capital requirements
Central bank transparency
empirical research
Loan interest rates volatility
loans
New Keynesian DSGE model
Panel and spectral analysis
prediction
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Summary:•Enhanced central bank transparency lowers loan interest rates volatility in a New Keynesian DSGE model.•This theoretical inverse relationship holds empirically for G-7 economies.•Tight macroprudential regulations strengthen central bank transparency's effect on loan interest rate stability.•Central bank transparency should be present in the ongoing research on financial and economic stability. We develop a theoretical framework revealing a negative relationship between the volatility of loan interest rates and central bank transparency. Empirical analysis of G-7 economies supports this theoretical prediction. Additionally, this relationship is strengthening under tight macroprudential regulations.
ISSN:0165-1765
DOI:10.1016/j.econlet.2023.111411