Abstract
This study presents evidence that, since the early 1990s, the prime rate has become more responsive to changes in money market conditions. More important, the evidence indicates that the responsiveness of the prime rate is independent of the direction in the movement of market interest rates, but is related to uncertainty regarding the direction in the movement of market interest rates. These findings are inconsistent with the literature suggesting that adjustment of the prime rate is asymmetric in the sense that it follows market interest rates more closely in upward movement than in downward movement.
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Zhu, J., Chen, M.W. & Li, W. Recent changes in the prime rate behavior. Rev Quant Finan Acc 33, 177–192 (2009). https://doi.org/10.1007/s11156-009-0127-x
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DOI: https://doi.org/10.1007/s11156-009-0127-x