Bank Credit Risk and Interest Rate Volatility: Granger Causality Vs VAR-GARCH Approach (Published)
The study develops VAR-GARCH models with Granger causality framework to examine the direction of causality flows, information transmission and trade-off between credit risk and interest rate volatility, using time series data collected from the CBN statistical bulletin and the annual accounting reports of deposit money banks for a period of 1981 to 2011. Our findings show that there is zero causality between credit risk and interest rate volatility; also, a transmission mechanism or a “pass through” is not found between the two variables. However, the two variables maintain non-monotonic relationship for the specified period
Keywords: Interest Volatility; Credit risk; Information transmission; Causality; VAR-GARCH