Comparison of the Pass-through Speed Models of Different Markets: An Empirical Study of the Markets of Mainland China and Taiwan

This paper adopted the Boone Indicator, developed by Boone et al. (2008) and Van Leuvensteijn et al. (2011; 2013), to investigate the influence of different pass-through spread models in the competition among banks in emerging markets. With the market share of banks as a dependent variable and marginal cost as an independent variable, this paper probed into the competition among banks regarding the loan market to determine whether competition on the loan interest rates of banks affected the pass-through of monetary policy-related interest rates. After analyzing approximately 5,657 entries of records of the banking industries in Taiwan and mainland China, this paper reached three significant conclusions: 1) the Boone Indicator Model pointed out that, competition in the banking market of mainland China The International Journal of Banking and Finance, Vol. 15. Number 1, 2020: 73-88 73 74 The International Journal of Banking and Finance, Vol. 15, No 1, 2020 : 73-88 was more intense than that of Taiwan; 2) empirical research based on the Interest Rate Spread Model indicated that the spread of mainland China was lower than that of Taiwan; 3) the Passthrough Speed Model implied that, the interest rate sensitivity of the market of mainland China was higher than that of the Taiwan market. The above results indicate that the influence of monetary policy pass-through on the interest rate of the market in mainland China is faster than in Taiwan.


JEL: G21, G28
A B S T R A C T This paper adopted the Boone Indicator, developed by Boone et al. (2008) and Van Leuvensteijn et al. (2011;, to investigate the influence of different pass-through spread models in the competition among banks in emerging markets. With the market share of banks as a dependent variable and marginal cost as an independent variable, this paper probed into the competition among banks regarding the loan market to determine whether competition on the loan interest rates of banks affected the pass-through of monetary policy-related interest rates. After analyzing approximately 5,657 entries of records of the banking industries in Taiwan and mainland China, this paper reached three significant conclusions: 1) the Boone Indicator Model pointed out that, competition in the banking market of mainland China The International Journal of Banking and Finance, Vol. 15. Number 1, 2020: 73-88 74 The International Journal of Banking and Finance, Vol. 15, No 1, 2020 : 73-88 was more intense than that of Taiwan; 2) empirical research based on the Interest Rate Spread Model indicated that the spread of mainland China was lower than that of Taiwan; 3) the Passthrough Speed Model implied that, the interest rate sensitivity of the market of mainland China was higher than that of the Taiwan market. The above results indicate that the influence of monetary policy pass-through on the interest rate of the market in mainland China is faster than in Taiwan.

Introduction
While many channels of monetary policies can shift policy effects to the economic system, the speed of the pass-through method plays the most vital role. The liberalization of the interest rate market will have a huge impact on the supervisory structure of commercial banks and social financing cost. Some evidence (Van Leuvensteijn, Bikker, Van Rixtel, & Sorensen, 2011;Van Leuvensteijn, Sorensen, Bikker, & Van Rixtel, 2013) suggests that, the costs of financial intermediaries are extremely high (Klein, 1971;Monti, 1972). As the banking system does not have strong competitiveness, all such factors weaken the monetary pass-through method. In fact, competition is the key to the success of monetary policies. In a competitive market, the changes in policy-related interest rates can be quickly transferred to the banking system, such as the provision of new interest rates to customers or interactive changes in the interest rates of banks and markets. The implementation of monetary policies requires a stable market pass-through speed mechanism to achieve the goal of economic stability of a government. Pass-through speed refers to the process of a government to adjust policy-based interest rates to change the interest rates of the monetary market. Banks transfer the cost of such changes to their retail interest rates. Most financial markets have forward-looking expectations, and even if the policyrelated interest rates of the government have not been changed, the retail interest rates of banks may have already reflected such changes.
Van  asserted that, despite new financial reforms conducted by emerging countries, competition in the banking industry have declined over the past decade. As stipulated by the interest rate system, traditional indicators fail to correctly assess competition in the banking market.

Literature Review
The earliest literature on bank competition is from the 1970s. The Monti-Klein Model of Klein (1971) and Monti (1972) assumed that the loan interest rates of banks had a certain degree of pricing power; lower demand elasticity led to higher intermediary profits (lower deposit interest rates led to higher loan interest rates) and weaker price competitiveness. Maudos and Fernandez de Guevara (2004) believed that the growth in the power of the banking market (i.e. the decrease in competitive pressure) resulted in the increase in net interest margins. In addition, Corvoisier and Gropp (2002) identified the difference between the retail interest rates of banks and interest rates of the monetary market. The retail loan interest rates of specific bank products rose sharply in concentrated markets.  analyzed the impact of loan interest rates of eight state-owned banks in the Eurozone on the competition of the loan market from 1994 to 2004. They employed their innovative approach, meaning the Boone Indicator, to assess the extent of the competition. Their empirical findings showed that, a competitive market hid significantly low interest rates. Policy-related interest rates would change bank interest rates and formed pass-through speed.
There were also findings in terms of the adjustment of loan interest rates via competition. Cottarelli and Kourelis (1994) and Borio and Fritz (1995) carried out cross-country analysis, and found that the monetary policy passthrough mechanism had significant effects in restraining competition. Thus, in an environment with weaker competition, banks often found loan interest rates fairly tricky, which was due to the barriers to entry. Mojon (2001) employed the index of deregulation, as established by Gual (1999), to test the influence of the competition of the banking industry on the pass-through of loan interest rates of banks in the Eurozone. Mojon found that, when the interest rates of the monetary market declined, higher competition tended to exert pressure on banks, in order to adjust loan interest rates faster. Scholnick (1996), Heinemann and Schu¨ler (2002), Sander and Kleimeier (2002), and Kuan-Min and Thanh-Binh Nguyen (2010) found similar asymmetric pass-through effect. Additionally, De Bondt (2005) argued that the strong competition of other banks and the capital market could facilitate banks in the Eurozone to accelerate the adjustment of interest rates.
Many country-specific studies found the same results; when market competition was weak, the entry of market interest rates into the pass-through mechanism of banks would also turn weak (Heffernan,1997). De Graeve et al. (2007) estimated the decisive factors of the pass-through speed behavior of Belgian banks, and discovered that banks with stronger market power adopted less competitive pricing policies. Lago-Gonza´lez and Salas-Fuma´s (2005) conducted microeconomic analysis of Spanish banks, and their evidence suggested that the combination of the price cost adjustment market power of banks led to price rigidity and asymmetric pass-through. Bredin and O'Reilly (2004) also showed similar results. Kok Sørensen and Werner (2006) deemed that, pass-through and bank competition in different countries in the Eurozone were different. Moreover, Gropp, Kok Sørensen, and Lichtenberger (2007) focused on the Eurozone, and held that the effect of pass-through provided positive impact on the level of competition in the banking sector.
Van  employed new competition indicators, which were unlike previous measurement methods (Boone, 2008;Bikker & van Leuvensteijn, 2008;van Leuvensteijn et al., 2011). They argued that, in a highly competitive market, more efficient companies were likely to have greater market share. The basic idea of the Boone Indicator is market power hypothesis, that is, efficiency hypothesis. In a highly competitive market, more efficient companies are likely to have a greater market share. In other words, it assumes that market share, through marginal cost, determines if a bank is competitive in a competitive market. Therefore, this paper further examines how an efficient market changes over time, how the changes in competition affect the loan costs of families and enterprises, and how policy-related interest rates are   passed through to the loan interest rates of banks. This paper intends to prove the following three hypotheses: 1) More competitive markets have smaller Boone Indicators; 2) In a highly competitive market, the spread is low; and 3) In a highly competitive market, short-term bank interest rates are more sensitive than market interest rates.

Data Sources and Description
The variable data used in the model of this paper were from the unbalance panel data of the Taiwan Economic Journal (TEJ). The samples consisted of quarterly data from 2005 to 2016, and contained a total of 1,553 entries of records from 33 public banks. In addition to the TEJ, the data of mainland China came from the CSMAR Solution Journal. These samples were also from 2005 to 2016, and contained a total of 3,840 entries of the observed values of 96 banks, excluding missing values.
The Boone Indictor was used to assess market competition, as well as the correlation between market share and marginal cost. The market share in this paper was the result of the sum of the quarterly loans of each bank for each year divided by the sum of the quarterly loans of an individual bank each year. Marginal cost refers to the average cost and income ratio, as proposed by Van Leuvensteijn et al. (2011). The data of bank interest rates were the monthly average loan interest rates of the banks of Taiwan and mainland China. In order to obtain sensitivity, market interest rates were the monthly average weighted overnight lending interest rates. A total of 264 entries of quarterly data from 2005 and 2016 in the markets of mainland China and Taiwan were observed.

Boone Indicator Model
(3.1a) (3.1b) I: country. t: time. ms: market share of each bank. mc: marginal cost of each bank. ε: residuals. β : Boone Indicator. (α, β, γ, f, g): parameters. d: virtual variable. (-βt) means the negative parameter of βt, indicating efficient market share. Hence, Eq. (3.1a) is rewritten as Eq. (3.1b) to describe the Boone Indicator of βt. Theoretically, the Taiwanese market is more competitive than that of mainland China, as the loan interest rates of Taiwan during the research period how policy-related interest rates are passed through to the loan interest rates of ban This paper intends to prove the following three hypotheses: 1) More competi markets have a smaller Boone Indicator; 2) In a highly competitive market, sprea low; and 3) In a highly competitive market, short-term bank interest rates are m sensitive than market interest rates.

Data sources and description
The variable data used in the model of this paper are from the unbalance panel d of the Taiwan Economic Journal (TEJ). The samples consist of quarterly data fr 2005 to 2016, and contain a total of 1,553 entries of records from 33 public banks addition to the TEJ, the data of mainland China also come from the CSMAR Solu Journal. These samples are also from 2005 to 2016, and contain a total of 3, entries of the observed values of 96 banks, excluding missing values.
The Boone Indictor is used to assess market competition, as well as the correla between market share and marginal cost. The market share in this paper is the re of the sum of the quarterly loans of each bank for each year divided by the sum of quarterly loans of an individual bank each year. Marginal cost refers to the aver cost and income ratio, as proposed by Van Leuvensteijn et al. (2011). The data of b interest rates are the monthly average loan interest rates of the banks of Taiwan mainland China. In order to obtain sensitivity, market interest rates are the mon average weighted overnight lending interest rates. A total of 264 entries of quart data from 2005 and 2016 in the markets of mainland China and Taiwan are observe how policy-related interest rates are passed through to the loan interest rates of ban This paper intends to prove the following three hypotheses: 1) More competi markets have a smaller Boone Indicator; 2) In a highly competitive market, sprea low; and 3) In a highly competitive market, short-term bank interest rates are m sensitive than market interest rates.

Data sources and description
The variable data used in the model of this paper are from the unbalance panel d of the Taiwan Economic Journal (TEJ). The samples consist of quarterly data fr 2005 to 2016, and contain a total of 1,553 entries of records from 33 public banks addition to the TEJ, the data of mainland China also come from the CSMAR Solu Journal. These samples are also from 2005 to 2016, and contain a total of 3, entries of the observed values of 96 banks, excluding missing values.
The Boone Indictor is used to assess market competition, as well as the correla between market share and marginal cost. The market share in this paper is the re of the sum of the quarterly loans of each bank for each year divided by the sum of quarterly loans of an individual bank each year. Marginal cost refers to the aver cost and income ratio, as proposed by Van Leuvensteijn et al. (2011). The data of b interest rates are the monthly average loan interest rates of the banks of Taiwan mainland China. In order to obtain sensitivity, market interest rates are the mon average weighted overnight lending interest rates. A total of 264 entries of quart data from 2005 and 2016 in the markets of mainland China and Taiwan are observe (3.1b) to describe the Boone Indicator of βt. Theoretically, Taiwanese market is more competitive than that of mainland China, as the l interest rates of Taiwan during the research period were lower than those of mainl China. The first hypothesis is proposed:

Boone Indicator Model
and βt (C) represent the Boone Indicators of Taiwan and mainl China.

78
The International Journal of Banking and Finance, Vol. 15, No 1, 2020 : 73-88 were lower than those of mainland China. The first hypothesis is proposed: represent the Boone Indicators of Taiwan and mainland China.

Interest Rate Spread Model
If there is a co-integration relationship between bank interest rates and their corresponding market prices, ECM will be the most suitable model. This paper considers the interest rates of two products of relevant banks, and develops the following two model equations. (3.2a) i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibrium and short-term adjustment via bank interest rates. This study first discusses the long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) is determined by the error of of Model (3.2a). BR means bank interest rates (loan interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi, t stands for country (i) and time (t) of the Boone Indicator. The market price of each country = long-term changes in interest rates, and = short-term changes in market interest rates). Market interest rates multiply the Boone Indicator (BI). = Boone long-term changes in market interest rates and = short-term changes in Boone Indicator (3. 3) The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest rates -market interest rates) is low. Theoretically, the competitive spread of Taiwan is smaller than that of mainland China, as the loan interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: are of each bank. mc: marginal cost of each bank. ε: β, γ, f, g): parameters. d: virtual variable. (-βt) means icating efficient market share. Hence, Eq. (3.1a) is ribe the Boone Indicator of βt. Theoretically, the petitive than that of mainland China, as the loan e research period were lower than those of mainland proposed: H �� : β � ( ) − β � (C) < 0; H �� : β � (T) − esent the Boone Indicators of Taiwan and mainland el lationship between bank interest rates and their CM will be the most suitable model. This paper wo products of relevant banks, and develops the 4 residuals. β: Boone Indicator. (α, β, γ, f, g): para the negative parameter of βt, indicating efficie rewritten as Eq. (3.1b) to describe the Boon Taiwanese market is more competitive than interest rates of Taiwan during the research per China. The first hypothesis is proposed: β � (C) ≥ 0. βt (T) and βt (C) represent the Boo China.

Interest Rate Spread Model
If there is a co-integration relationship be corresponding market prices, ECM will be considers the interest rates of two products following two model equations.
i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibrium and short-term adjustment via bank interest rates. This study first discusses the long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) is determined by the error of μ �,� of Model (3.2a). BR means bank interest rates (loan interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t stands for country (i) and time (t) of Boone Indicator. The market price of each country (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term changes in market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest ratesmarket interest rates) is low. Theoretically, the competitive spread of Taiwan is smaller than that of mainland China, as the loan interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibrium and short-term adjustment via bank interest rates. This study first discusses the long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) is determined by the error of μ �,� of Model (3.2a). BR means bank interest rates (loan interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t stands for country (i) and time (t) of Boone Indicator. The market price of each country (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term changes in market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest ratesmarket interest rates) is low. Theoretically, the competitive spread of Taiwan is smaller than that of mainland China, as the loan interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibrium and short-term adjustment via bank interest rates. This study first discusses the long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) is determined by the error of μ �,� of Model (3.2a). BR means bank interest rates (loan interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t stands for country (i) and time (t) of Boone Indicator. The market price of each country (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term changes in market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest ratesmarket interest rates) is low. Theoretically, the competitive spread of Taiwan is smaller than that of mainland China, as the loan interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: and ζ(C) means the spreads of Taiwan and mainland China.
i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2 long-term equilibrium pass-through. Model (3.2b) indicates the long-ter and short-term adjustment via bank interest rates. This study first long-term influence of Model (3.2a), as the short-term influence of M determined by the error of μ �,� of Model (3.2a). BR means bank inter interest rates). ∆BR refers to the monthly changes in bank interest rate for country (i) and time (t) of Boone Indicator. The market price of (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-te market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitiv spread (bank interest ratesmarket interest rates) is low. The competitive spread of Taiwan is smaller than that of mainland Chin interest rates of Taiwan during the research period were lower than thos China. See Hypothesis 2, as follows: H �� : ζ( ) − ζ( ) > 0; H �� : ζ( ζ(T) and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) in and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indicator(BI) interest rates (MR) are multiplied together to obtain coefficient m determine when the competition of Taiwan is greater than mainland pass-through speed is faster, while the p value of coefficient m Hypothesis 3: In a highly competitive market, short-term bank interest try (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the ilibrium pass-through. Model (3.2b) indicates the long-term equilibrium adjustment via bank interest rates. This study first discusses the uence of Model (3.2a), as the short-term influence of Model (3.2b) is the error of μ �,� of Model (3.2a). BR means bank interest rates (loan ∆BR refers to the monthly changes in bank interest rates. BIi,t stands ) and time (t) of Boone Indicator. The market price of each country g-term changes in interest rates, and μ � ∆MR �,� = short-term changes in t rates).
Model is adopted. Hypothesis 2: In a highly competitive market, the interest ratesmarket interest rates) is low. Theoretically, the read of Taiwan is smaller than that of mainland China, as the loan f Taiwan during the research period were lower than those of mainland pothesis 2, as follows: i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibrium and short-term adjustment via bank interest rates. This study first discusses the long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) is determined by the error of μ �,� of Model (3.2a). BR means bank interest rates (loan interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t stands for country (i) and time (t) of Boone Indicator. The market price of each country (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term changes in market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest ratesmarket interest rates) is low. Theoretically, the competitive spread of Taiwan is smaller than that of mainland China, as the loan interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: H �� : ζ( ) − ζ( ) > 0; H �� : ζ( ) − ζ( ) ≤ 0. ζ(T) and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) into Eq. (3.2c); and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indicator(BI), and market interest rates (MR) are multiplied together to obtain coefficient m, in order to determine when the competition of Taiwan is greater than mainland China; if the pass-through speed is faster, while the p value of coefficient m is significant.
i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a long-term equilibrium pass-through. Model (3.2b) indicates the long-term and short-term adjustment via bank interest rates. This study first d long-term influence of Model (3.2a), as the short-term influence of Mo determined by the error of μ �,� of Model (3.2a). BR means bank intere interest rates). ∆BR refers to the monthly changes in bank interest rates for country (i) and time (t) of Boone Indicator. The market price of (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term market interest rates).

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) int and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indicator(BI), interest rates (MR) are multiplied together to obtain coefficient m, determine when the competition of Taiwan is greater than mainland C pass-through speed is faster, while the p value of coefficient m is i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilibri and short-term adjustment via bank interest rates. This study first discusses long-term influence of Model (3.2a), as the short-term influence of Model (3.2b determined by the error of μ �,� of Model (3.2a). BR means bank interest rates (lo interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t sta for country (i) and time (t) of Boone Indicator. The market price of each coun (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term changes market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive market, spread (bank interest ratesmarket interest rates) is low. Theoretically, competitive spread of Taiwan is smaller than that of mainland China, as the lo interest rates of Taiwan during the research period were lower than those of mainla China. See Hypothesis 2, as follows: H �� : ζ( ) − ζ( ) > 0; H �� : ζ( ) − ζ( ) ≤ ζ(T) and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) into Eq. (3.2 and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indicator(BI), and mar interest rates (MR) are multiplied together to obtain coefficient m, in order determine when the competition of Taiwan is greater than mainland China; if pass-through speed is faster, while the p value of coefficient m is significa i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflect long-term equilibrium pass-through. Model (3.2b) indicates the long-term equilib and short-term adjustment via bank interest rates. This study first discusse long-term influence of Model (3.2a), as the short-term influence of Model (3.2 determined by the error of μ �,� of Model (3.2a). BR means bank interest rates interest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t s for country (i) and time (t) of Boone Indicator. The market price of each co (η � MR �,� = long-term changes in interest rates, and μ � ∆MR �,� = short-term chang market interest rates).
The Spread Model is adopted. Hypothesis 2: In a highly competitive marke spread (bank interest ratesmarket interest rates) is low. Theoretically competitive spread of Taiwan is smaller than that of mainland China, as the interest rates of Taiwan during the research period were lower than those of main China. See Hypothesis 2, as follows: H �� : ζ( ) − ζ( ) > 0; H �� : ζ( ) − ζ( ) ζ(T) and ζ(C) means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) into Eq. (3 i means country (i =1,...,N). T means month (t = long-term equilibrium pass-through. Model (3.2b) i and short-term adjustment via bank interest rate long-term influence of Model (3.2a), as the shortdetermined by the error of μ �,� of Model (3.2a). B interest rates). ∆BR refers to the monthly changes for country (i) and time (t) of Boone Indicator. T (η � MR �,� = long-term changes in interest rates, and market interest rates).

Pass-Through Speed Model
In order to verify the speed equation, this paper r and mDBI_(i,t) MR_(i,t), virtual variable (D), interest rates (MR) are multiplied together to o determine when the competition of Taiwan is gre pass-through speed is faster, while the p value Study of the Markets of Mainland  means the spreads of Taiwan and mainland China.

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. (3.2b) into Eq. (3.2c); and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indicator(BI), and market interest rates (MR) are multiplied together to obtain coefficient m, in order to determine when the competition of Taiwan is greater than mainland China; if the pass-through speed is faster, while the p value of coefficient m is significant. Hypothesis 3: In a highly competitive market, short-term bank interest rates are more sensitive than market interest rates. See Hypothesis 3, as follows: represent the pass-through speeds of Taiwan and mainland China, respectively. Table 1 shows the descriptive statistics of all samples of Taiwan, including bank interest rates (BR), market interest rates (MR), Boone indicator (BI), BI*MR, BR-MR, market share (MS), and marginal cost (MC). Table 2 displays the descriptive statistics of all samples of mainland China, including mean, standard deviation, median, maximum, and minimum. Based on the observations of Tables 1 and 2, the Boone coefficient of Taiwan was higher, indicating that it was less competitive, while that of mainland China was lower, indicating that it was more competitive. adopted. Hypothesis 2: In a highly competitive market, the ratesmarket interest rates) is low. Theoretically, the Taiwan is smaller than that of mainland China, as the loan during the research period were lower than those of mainland 2, as follows: H �� : ζ( ) − ζ( ) > 0; H �� : ζ( ) − ζ( ) ≤ 0. e spreads of Taiwan and mainland China. The Spread Model is adopted. H spread (bank interest ratesma competitive spread of Taiwan is s interest rates of Taiwan during the r China. See Hypothesis 2, as follow ζ(T) and ζ(C) means the spreads of T

Pass-Through Speed Model
In order to verify the speed equati and mDBI_(i,t) MR_(i,t), virtual interest rates (MR) are multiplied determine when the competition of pass-through speed is faster, whi Hypothesis 3: In a highly competiti sensitive than market interest rates. 0; H �� : ξ( ) − ξ(C) ≤ 0. ξ(T) and and mainland China, respectively. a highly competitive market, the rates) is low. Theoretically, the at of mainland China, as the loan were lower than those of mainland ζ( ) > 0; H �� : ζ( ) − ζ( ) ≤ 0. inland China.

Descriptive analysis
rewrites Eq. (3.2b) into Eq. (3.2c); Boone Indicator(BI), and market obtain coefficient m, in order to eater than mainland China; if the e of coefficient m is significant. rt-term bank interest rates are more s 3, as follows: H �� : ξ( ) − ξ(C) > t the pass-through speeds of Taiwan amples of Taiwan, including bank 5 (BR �,� − MR �,� ) = C + δBI �,� + K � D � + ζD � * BI �,� + μ �,� The Spread Model is adopted. Hypothesis 2: In a highly co spread (bank interest ratesmarket interest rates) is lo competitive spread of Taiwan is smaller than that of mainla interest rates of Taiwan during the research period were lower China. See Hypothesis 2, as follows: H �� : ζ( ) − ζ( ) > 0; ζ(T) and ζ(C) means the spreads of Taiwan and mainland China

Pass-Through Speed Model
In order to verify the speed equation, this paper rewrites Eq. and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone Indi interest rates (MR) are multiplied together to obtain coeff determine when the competition of Taiwan is greater than m pass-through speed is faster, while the p value of coeffic Hypothesis 3: In a highly competitive market, short-term bank sensitive than market interest rates. See Hypothesis 3, as follow 0; H �� : ξ( ) − ξ(C) ≤ 0. ξ(T) and ξ(C) represent the pass-thr and mainland China, respectively. Table 1 shows descriptive statistics of all the samples of T

Heterogeneous Variation Robustness Test
In order to avoid model distortion when descriptive analysis, correlation coefficient, covariance, and variables are extremely similar, this study added the Newey-west Test, which could exclude self-correlation and heterogeneous variation to reach the best unbiased estimator. The first step included heterogeneous variation test BP (Breusch) and the white test. Table 3 shows that all three equations reject the null hypothesis (H0) of homogeneity and variation, implying that all three models have heterogeneous variations.

Boone Model of Taiwan and Mainland China
In a competitive market, the Boone Indicator, meaning the marginal cost coefficient, is negative, as shown by g in Eq. (3.1b). This paper supposes that, if Taiwan entered a developing country earlier than mainland China, the loan interest rates of Taiwan during the research period would be lower than those of mainland China. Hence, the Taiwanese market should be more competitive. However, the test results (Table 4) of this paper rejects H0. The results show that mainland China is more competitive than Taiwan in terms of the loan market. Therefore, H10 is rejected, implying that lower intermediary profits lead to stronger price competitiveness, which is similar to Klein (1971). In order to prevent model distortion, this paper also tested the Neweywest Model, as shown in Table 5. The results also rejected H0, that Taiwan is more competitive than mainland China. As mainland China is more competitive than Taiwan, thus, H 10 is also rejected.  Table 6 demonstrates the general regression of the Speed Model. The Boone Indicator points out that, in a more competitive market, the pass-through between the loan interest rates of banks and market interest rates is faster. The Virtual variable, the Boone Indicator, and market interest rates are multiplied together. Coefficient m in Eq. (3.2c) is used. This paper supposes that, if Taiwan entered a developing country earlier than mainland China, the loan interest rates of Taiwan during the research period would be lower than those of mainland China. Hence, Taiwan should be more competitive than mainland China; and the pass-through speed of the former should be faster than the latter. The results show that, a more competitive loan market has more complete pass-through speed. The pass-through speed of mainland China is faster than that of Taiwan.

Interest Rate Spread Models of Taiwan and Mainland China
Thus, H 20 is rejected.  Table 7 shows the Speed Model Newey-west adjustment, and indicates that a more competitive loan market has more complete pass-through speed. The passthrough speed of mainland China is faster than that of Taiwan, thus, H 20 is also rejected.

Interest Rate Indicator Pass-through Models of Taiwan and Mainland China
The Boone Indicator refers to the spread of loan interest rates of banks minus the market interest rates in a competitive market. The Boone Indicator multiplies virtual variables to reach a positive coefficient, such as the ζ value in Eq. (3.3). This paper supposes that if Taiwan entered a developing country earlier than mainland China, the loan interest rates of Taiwan during the research period would be lower than those of mainland China. Hence, the spread of Taiwan should be smaller than that of mainland China; however, Table 8 shows that the spread (loan interest rates of banks minus market interest rates in the loan market) of mainland China is smaller than that of Taiwan, thus, H30 is rejected. In order to prevent model distortion, Newey-west regression is tested. Table 9 shows the test of the Spread Model. The results reject the null hypothesis that Taiwan is more competitive than mainland China, and that the former's spread is smaller than that of the latter. The market in mainland China is more competitive than Taiwan, thus, the former's spread is smaller than that of the latter, and therefore H 30 is rejected.

Empirical Results
Based on the robustness analysis, this paper reached the following conclusions. Eq. (3.1b) in the Boone Model of Hypothesis 1 assumes that Taiwan is more competitive than mainland China. However, the results showed the opposite. Eq. (3.3) in the Spread Model of Hypothesis 2 assumes that the spread of the loan market of Taiwan is smaller than that of mainland China. However, the result indicated the opposite. Eq. (3.2c) in the Speed Model of Hypothesis 3 assumes that the pass-through speed of Taiwan is faster than that of mainland China. However, the result revealed the opposite.

Conclusion and Suggestion
China's loan market is more competitive which implies a lower spread; in other words, competition may lower interest rates. However, bank competition may lead to more dangerous behavior, resulting in financial turmoil. There is no recent literature that explored in depth the correlation between bank competition and interest rates in emerging markets. Some literature adopted the Lerner indicator, a traditional indicator and Panzar-Rosse H statistics or HHI concentration, which are limited by the regulations of the interest rate system, and thus, fail to effectively assess bank competition. Van  assessed the competition among banks in China, and deemed that the Boone Indicator was the best way to assess such competition. However, the Boone Indicator is a relatively immature tool, and is not supported by literature. Therefore, this paper adopted the Boone Indicator to compare bank competition in the markets of mainland China and Taiwan, and reached three important empirical conclusions, which can be compared with Leuvensteijn, Bikker, Adrian, Rixtel and Sorensen (2013), Cottarelli and Kourelis (1994), and Borio and Fritz (1995). During the research period, the loan interest rates of Taiwan were lower than those of mainland China; however, the deregulation of Taiwan was earlier than that of mainland China. Theoretically, the loan market of Taiwan should be more competitive than that of mainland China. However, the empirical results indicated that, the competition among banks in the loan market of mainland China is more intense than that of Taiwan. In addition, China has smaller spread and faster pass-through speed than Taiwan, which is consistent with Klein (1971). The results of this paper could serve as complementary reference for literature on the Boone Indicator. Overall, after comparing the empirical analysis results with the Mundell-Flemming model, we can see that China adopts a fixed exchange rate system featuring high interest rate sensitivity, fast regulation and small implicit LM slope. When the People's Bank of China adopts an expansionary monetary policy, global imbalances would be adjusted through foreign exchange reserves, without impacting on long-term balanced national income. In contrast, the Taiwan market features low interest rate sensitivity and slow regulation. As the Taiwan market adopts a floating exchange rate, global imbalances as a result of expansionary monetary policy would be improved through devaluation, leading to significant increase in long-term balanced GDP. Even so, based on policy dynamics of the Mundell-Flemming model, national income growth is possible for both Mainland China and the Taiwan market, if fiscal policy is followed.