International linkages in bank lending and borrowing markets: Evidence from six industrialized countries

Abstract

This study employs cointegration analysis to examine the long-run relationships in Prime and CD rates across the US, Canada, Japan, Germany, France and the UK. The nature and strength of the results are found to be contingent on the time periods investigated. While we are unable to reject the null hypothesis of noncointegration for the January 1972-December 1979 interval, there is substantial evidence of cointegration for the more recent January 1980-October 1989 interval. These results are indicative of a pattern of increasing integration among the international bank lending and borrowing markets, coinciding with the trend towards the globalization of banking activity. The evidence from the error correction model suggests that the US and Germany are the dominant countries in the bank lending and borrowing markets. The Prime and CD rates for these countries are seen to cause (in the Granger sense) the rates of other countries.