The asymmetric adjustment between lending-deposit rates in G8 countries: Evidence from rank test

Using the non-parametric rank tests proposed by Breitung (2001), we set out in this study to determine whether any non-linear long-run equilibrium relationship exists between the lending and deposit rates of G8 countries. We go on to adopt the Threshold Error-Correction Model (TECM) to determine whether a similar relationship is discernible possibly non-linear functions of the lending and deposit rates. These findings clearly point that there are indeed such long-run non-linear cointegration relationships between the lending and deposit rates and successfully capture the dynamic adjustment in G8 countries.