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Integration between the Romanian and the Euro Area Banking Markets: An Application of the Johansen Cointegration Test to Interest Rates on Loans to Non-Financial Corporations
Keywords
banking market integration, interest rate spread, cross-border loans, euro area, Romania, Johansen co-integration test, Granger causality
Abstract
The aim of the present paper is to investigate if there is any level of integration between the Romanian and the euro area banking markets – with focus on lending activities of monetary financial institutions (MFIs) to non-financial corporations (NFCs) – and to assess this level of integration through using both quantity- and especially price-based data. The main empirical instrument used is the Johansen cointegration test applied to pairs of interest rates for euro-denominated loans granted by MFIs located in the two markets to NFCs for different loan maturities and amounts. By employing recent data, the results of the test indicate the existence of a cointegration relationship between the interest rates for loans with floating rate / period of initial rate fixation of up to 1 year and up to and including EUR 1 million euro. These findings suggest that, although Romania is not yet part of the Economic and Monetary Union (EMU), the two markets are not completely disintegrated especially with regard to short-term bank lending operations. Although further investigation is necessary, the findings are relevant from the perspective of Romania entering the EMU and have implications for Romanian NFCs’ access to finance.