Boone Indicator Indicator Model Model ln(ms )＝α + β� ln(mc�,� )+∑���,…..,(���) γ� d� +ε�,� ln(ms�,� �,� )＝α + β� ln(mc�,� )+∑���,…..,(���) γ� d� +ε�,� ln(ms )＝α + β� ln(mc�,� )+fD+gD ln(mc�,� ) +ε�,� ln(ms�,� �,� )＝α + β� ln(mc�,� )+fD+gD ln(mc�,� ) +ε�,�

I: t: share each bank. marginal I: country. t: time.ms: ms:market market share bank. mc:mc: marginal cost ofcost eachof I: country. country. t: time. time. ms: market shareofof ofeach each bank. mc: marginal cost of each each bank bank residuals. β: Boone Indicator. (α, β, γ, f, g): parameters. d: virtual variable. (-βt) bank. ε: residuals. β: Boone Indicator. (α, β, γ, f, g): parameters. d: virtual residuals. β: Boone Indicator. (α, β, γ, f, g): parameters. d: virtual variable. (-βt) me me the parameter βt, market share. Hence, variable. (-βt) means theof parameterefficient of βt, indicating the negative negative parameter ofnegative βt, indicating indicating efficient marketefficient share. market Hence, Eq. Eq. (3.1a (3.1a rewritten as describe Boone Indicator of βt. share. Hence, (3.1a) isto rewritten as Eq.the (3.1b) to describe the Boone rewritten as Eq. Eq.Eq.(3.1b) (3.1b) to describe the Boone Indicator ofIndicator βt. Theoretically, Theoretically, of βt. Theoretically, Taiwanese market is morethat competitive than that of Taiwanese market more competitive than of China, as Taiwanese market is is the more competitive than that of mainland mainland China, as the the ll mainland China, as the loan interest rates of Taiwan during thelower research period interest rates of Taiwan during the research period were than those of mainl interest rates of Taiwan during the research period were lower than those of mainl China. : β� (𝑇) − β� (C) < 0; H�� : β� (T China. The The first first hypothesis hypothesis is is proposed: proposed: H H�� �� : β� (𝑇) − β� (C) < 0; H�� : β� (T β β�� (C) (C) ≥ ≥ 0. 0. βt βt (T) (T) and and βt βt (C) (C) represent represent the the Boone Boone Indicators Indicators of of Taiwan Taiwan and and mainl mainl China. China.

hare of each bank. mc: marginal cost of each bank. ε: residuals. β: Boone Indicator. (α, β, γ, f, g): para β, γ, f, g): parameters. d: virtual variable. (-βt) means the negative parameter of βt, indicating efficie dicating efficient market share. Hence, Eq. (3.1a) is rewritten as Eq. (3.1b) to describe the Boon 78 Indicator of βt.TheTheoretically, International Journal of Banking and Finance,market Vol. 15, Nois 1, 2020 : 73-88 cribe the Boone the Taiwanese more competitive than mpetitive than that of mainland China, as the loan interest rates of Taiwan during the research per he research period were than lowerthose thanofthose of mainland China. The first ishypothesis were lower mainland China. The first hypothesis proposed: is proposed: s proposed: H�� : β� (𝑇) − β� (C) < 0; H�� : β� (T) − β� (C) ≥ 0. βt (T) and βt (C) represent the Boo China. China. represent the Boone of Taiwan and mainland resent the Boone Indicators ofIndicators Taiwan and mainland del

thereinterest is a rates co-integration If there is a co-integration relationship betweenIfbank and their relationship be corresponding market corresponding market prices,rates ECM and will be the most suitable model. Thisprices, paper ECM will be elationship between bank interest their considers the interest rates of two products the interest of twoThis products of relevant banks, and develops the ECM will beconsiders the most suitablerates model. paper following two model equations. two model equations. two productsfollowing of relevant banks, and develops the

+�,�η�+ MR +MR θBI�,��,�+ MR + k D + μ�,� (3.2 �,��,�=+ζBI �,� �,� BR �,� =BR ζBI η��,� MR θBI k�,� (3.2a) (3.2a) � D� + �μ�,�� BR �,� = ζBI�,� + η� MR �,� + θBI�,� MR �,� + k � D� + μ�,� (3.2a) BR = ζBI�,� = + η�μMR �,�++μθBI MR+�,�ξBI + k �∆MR D� + μ�,�+ v (3.2a) (3.2 � �,��� �,� �,� ∆MR�,��,� �,� ∆BR�,��,� ∆BR = λ� �,� μ�,���λ+ μ� ∆MR �,�� ∆MR +�,�ξBI + v�,� (3.2b) �,� (3.2b) ∆BR �,� = λ� μ�,��� + μ� ∆MR �,� BR + ξBI ∆MR + v (3.2b) �,� �,� + �,� θBI�,� MR �,� + k � D� + μ�,� = �,� ζBI �,� �,� + η� MR ∆BR = λ�,�BR μ= +hBI μBR ∆MR + ξBI +BR =+ ζBI ηMR MR + MR + k � �,� D +v μ�,�θBI (3.2a) (3.2b) �,��� �+ �,� �,� + jD +�,�∆MR MR (3.2 ζBI +θBI η�ζBI MR +MR ++ k Dμ + μη�,� �,� c �,� �= �,� �,� �,� �MR �,� ��,� �,��,� �,�+ �,�mDBI = + +μθBI + k(3.2a) BR = + ηθBI +�,��,� k � D�,� BR �,��,�=BR c +� hBI jD + μ�,��,� �,���,� � MR � D� + μ �,� mDBI � MR �,��MR �,� + �+ �,� �,� MR �,�(3.2c) �,� MR �,��,� � �,�+ �,� �,� �,� ζBI ∆BR = λ μ + μ ∆MR + ξBI ∆MR + v (3.2a) BR = c + hBI MR + jD + mDBI MR + μ (3.2c) + μ (3.2a) �,� � �,��� � �,� �,� �,� �,� �,� �,� + μ ∆MR � �,� �,�+ v �,� + η� MR �,� + θBI�,� MR +�,�μ= μI�,��,� �,� (3.2a) ∆BR + (3.2a) (3.2b) �,� +ck+ � D�hBI �,� λ� μ∆BR =jD μ�means ξBI ∆MR v�,�+ μ�,�� ∆MR (3.2b) �,����,� �λ �,� = �,� ∆MR (3.2c) BR �,� +�,��,�μ (3.2c) ��μ+ �,��� �μ∆MR �,� �,� = ξBI ∆BR ++ μ�,� ∆MR + ∆MR +Model v�,��,� + �,� i=means �,� MR �,� �,� MR �,� country (i+=1,...,N). TλξBI month (t λξBI =� μ+ 1,...,T). (3.2a) reflect �,� �,��� �,� ∆MR �,� + v� �,�mDBI �,��� � ∆BR �,��,� �,� i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the BR = c + hBI MR + jD + mDBI MR + μ (3.2b) vμ�,� + μ ∆MR i means (3.2b) �,� �,� �,� � �,� �,� �,� + ξBI ∆MR + v (3.2b) (3.2b) country =1,...,N). T+hBI means month (t =indicates 1,...,T). (3.2a) reflects the BR �,�equilibrium = hBI�,��,� MR jD= mDBI MR +(3.2b) μ= (3.2c) � �,� �,� �,� �,�(ic + long-term indicates the long-term equilib � �,��� BR = pass-through. c�,�+ MR +Model jD mDBI MR +the μModel (3.2c) �+ �,� �,� �,� �,� �,� � +�,� �,� �,� �,� long-term BR c + hBI MR + jD + mDBI MR + BR c + hBI MR + jD + mDBI μ long-term equilibrium pass-through. Model (3.2b) equilibrium �,� �,� �,� � �,� �,� i means country (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) �,� �,� � �,� �,� �,� i(3.2c) means country (i =1,...,N). Tmeans means month (t =indicates 1,...,T). Model (3.2a) reflects the i country (i =1,...,N). T means month (t = 1,...,T). Model (3.2 and short-term adjustment via bank interest rates. This study first discusse long-term equilibrium pass-through. Model (3.2b) the long-term equilibrium + μ (3.2c) �,� �,� MR �,� +and + jD +short-term mDBI MR + μcountry (3.2c) μ�,�hBI (3.2c) i means (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the adjustment via bank interest rates. This study first discusses the � �,� �,� �,� reflects the long-term equilibrium pass-through. Model (3.2b) indicates the i pass-through. means country (icountry =1,...,N). T imeans month (tModel = 1,...,T). (3.2a) reflects long-term equilibrium Model indicates the long-term equilibrium means (i =1,...,N). T means month (t = i Model means (i (3.2b) =1,...,N). Tcountry means month (t first =Model 1,...,T). Model (3.2a long-term equilibrium pass-through. (3.2b) indicates the long-ter long-term influence ofequilibrium (3.2a), as the short-term influence of Model (3.2 and short-term adjustment via bank interest rates. This study discusses the long-term equilibrium pass-through. Model (3.2b) indicates theindicates long-term equilibrium long-term pass-through. Model (3.2b) the long-term equilibri Model (3.2a) reflects thereflects long-term influence of Model (3.2a), as the short-term influence of Model (3.2b) isi = 1,...,T). Model (3.2a) the long-term equilibrium and short-term adjustment via bank interest rates. This long-term equilibrium pass-through. Model (3.2b) long-term equilibrium pass-through. Model (3.2b) indicates the long-term and short-term adjustment via bank interest rates. This study first and short-term adjustment via bank interest rates. This study first discusses the ntry (i =1,...,N). T means month (t = 1,...,T). Model (3.2a) reflects the 1,...,T). Modellong-term (3.2a) reflects the and short-term adjustment via bank interest rates. This study first discusses the determined by error of μ�,�equilibrium of (3.2a). BR means bank interest rates influence ofthe Model (3.2a), asofModel the short-term influence of (3.2b) isd and short-term adjustment viaand bank interest rates. This study first discusses long-term equilibrium )the indicates the long-term equilibrium short-term adjustment viaModel bank interest rate 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 study first discusses the long-term influence Model (3.2a), as the short-term uilibrium pass-through. Model (3.2b) indicates the long-term determined by the error of μ of Model (3.2a). BR means bank interest rates (loan ndicates the long-term equilibrium �,�(3.2a), long-term influence of Model as the short-term influence of Model is long-term influence oflong-term Model (3.2a), as the short-term influence of Model (3.2b) is(3.2b) long-term influence of Model (3.2a), as the short-term influence of Model (3.2b study first discusses the ates. This study first discusses the long-term influence of Model (3.2a), as the shortinterest rates). ∆BR refers to the monthly changes in bank interest rates. BIi,t s determined by the error of μ of Model (3.2a). BR means bank interest rates (loan 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 inter m via bank interest rates. Thisisstudy discusses the of in�,� bank �,�firstmonthly s. adjustment This studyinterest first discusses the∆BR influence ofdetermined Model (3.2b) determined byModel the error of Model (3.2a). rates). refers todetermined the changes interest rates. BIi,t stands by theof error of μ of (3.2a). BR means bank interest rates (loan determined by the error μ of Model (3.2a). BR means bank interest rates (loan determined by the error of μ of Model (3.2a). BR means bank interest rates (lo luence of Model (3.2b) is �,� rt-term influence of Model (3.2b) is �,� �,� determined by the error of μ of Model (3.2a). B by the error of μ of Model (3.2a). BR means bank intere interest rates). ∆BR refers to the monthly changes in bank interest rate �,� luenceinfluence of Model (3.2a), as the short-term influence of Model (3.2b) is �,� for country (i) and time (t) of Boone Indicator. The market price of each co term of Model (3.2b) is interest rates). ∆BR refers to the∆BR monthly changes inbank bank interest rates. BIi,tcountry stands BR means bank interest rates (loan interest rates). ∆BR refers to the monthly interest rates). ∆BR refers to the monthly changes in interest rates. BIi,t stands syBR bank interest rates (loan for country (i)(loan and time (t) of Boone Indicator. The market price ofbank each interest rates). refers tochanges the monthly changes in bank interest rates. BIi,t sta means bank interest rates interest rates). ∆BR refers to= the monthly changes interest rates). ∆BR refers to the monthly changes in interest rates interest rates). ∆BR refers to the monthly in bank interest rates. BIi,t stands for country (i) and time (t) ofand Boone Indicator. The market price of error of μinterest Model (3.2a). BR means bank interest rates (loan R the means bank rates (loan �,� of (η MR = long-term changes in interest rates, μ ∆MR short-term chang for country (i) and time (t) of Boone Indicator. The market price of each country for country (i) and time (t) of Boone Indicator. The market price of each country � �,� � �,� changes in bank interest rates. BIi, t stands for country (i) and time (t) of the for country (i) and time (t) of Boone Indicator. The market price of each coun interest rates. BIi,t stands es in bank interest rates. BIi,t stands for country (i) and time (t) of Boone Indicator. 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 changes inT (η MR = long-term changes in interest rates, and μ ∆MR = short-te .in∆BR tofor the monthly changes in time bank interest stands � rates. �,� BIi,t Indicator. � each �,� country � country �,� � �,� bankrefers interest rates. BIi,t stands (i) and (t) of Boone The market price of (η long-term changes in interest rates, and μ = rates, short-term changes inrates, market interest rates). (ηmarket MR �,�price = long-term changes in interest rates, and μ=changes ∆MR short-term changes ket price of (t) each country � MR �,� = market � ∆MR �,� (η MR = long-term in interest rates, and μ ∆MR short-term changes in . The market price of each country �changes �changes �,� = (η MR = long-term in interest and Boone Indicator. The of each country = long-term (η MR = long-term changes in interest and μ ∆MR = short-term � �,� � �,� market interest rates). � �,� i) and time of Boone Indicator. The price of each country � �,� � �,� The market price of each country market interest rates). (η MR = long-term changes in interest rates, and μ ∆MR = short-term changes in market interest rates). = short-term changes in � �,� � �,� market interest rates). nd μ ∆MR = short-term changes in �,� market interest rates). interest rates). � ng-term changes interest rates,inand and μ� ∆MR �,� ==market short-term changes in in market interest rates). inininterest rates, short-term changes market interest rates). μ� ∆MR =�,� short-term changes �,� Market interest rates (MR ) multiply the Boone Indicator (BI). (θBI MR = B Market interest rates (MR ) multiply the Boone Indicator (BI). (θBI i,t i,t market Market interest rates). �,� �,� �,� st rates). Market interest ratesi,tinterest multiply the Boone Indicator (BI). (θBI MR = Boone i,t)rates interest rates multiply Boone Indicator (BI). Market (MR ) the multiply the Boone Indicator (θBI MR Market interest rates (MR )(MR multiply therates Indicator (BI). (θBI = Boone �,� �,� MR i,tBoone �,�the �,� = Boo Market interest rates (MR ) multiply Boone �,� �,� Market interest (MR the Boone Indicator (BI). (θBI M i,t(BI). i,t) multiply long-term changes in market interest rates and ξB ∆MR = short-te �,� �,� MR�,� = Boone long-term changes in interest rates and ξB = =short-term changI Market interest (MR )market multiply therates Boone Indicator �,� ∆MR �,� (θBI long-term changes ini,t market interest and ξB ∆MR =(BI). short-term changes inshort-term (BI). (θBI(MR MRlong-term = Boone �,� �,� long-term changes market interest rates and ξB ∆MR short-term changes �,� �,� Boonerates long-term changes ininchanges market interest rates and endicator Indicator (θBI = Boone �,�(BI). �,� �,� long-term changes in market interest rates and ξB �,� MRthe �,� long-term in market interest rates and ξB ∆MR = changes in market interest rates and ξB ∆MR = short-term changes ino est rates multiply Boone Indicator (BI). (θBI MR = Boone Boone Indicator). Country virtual variable (Di). The short-term model i,t)�,�Market �,� �,� (BI). (θBI MR = Boone interest rates (MR ) multiply the Boone Indicator (BI). (θBI MR = Boone �,� �,� �,�short-term �,� i,t �,� �,� �,�model �,� Boone Indicator). Country virtual variable (Di). The short-term model of Model Boone Indicator). Country virtual variable (Di). The model of Model (3.2b) changes inrates Boone Indicator). Country virtual variable (Di). The short-term of Model (3 changes in market interest rates and ξB ∆MR =(Di). short-term changes in ξB= ∆MR = long-term short-term changes in Boone Indicator). Country virtual variable (Di). Th short-term changes in Boone Indicator). Country virtual variable (Di). The shortBoone Indicator). Country virtual variable The short-term model of �,�short-term �,� �,� �,� includes error correction item (λ μ ). anges in market interest and ξB ∆MR = short-term changes in ∆MR = short-term changes in � �,��� �,� �,� Boone Indicator). Country virtual variable (Di). The short-term model of Model (3.2b �,� �,� long-term changes inincludes market interest rates and ξB ∆MR = short-term changes in includes error correction item (λ ). ). error correction item (λ μ ). �,� �,� erm model of Model (3.2b) � μ�,��� includes error correction item (λ μ The short-term model of Model (3.2b) � �,��� includes error correction item (λ μ ). includes error correction item (λ μ ). � �,��� Countrymodel virtual (Di). TheCountry short-term model error ofvariable Model (3.2b) Boone Indicator). virtual (Di).item The short-term model �of�,��� Model (3.2b � �,��� term model of Model (3.2b)item includes correction etor). short-term ofvariable Model (3.2b) includes error correction (λ μ ). In Models (3.2a) and (3.2b) and various competitive effects [parame � �,��� Boone Country virtual variable (Di). The short-term model ofof((ζ,ξ,θ) Model (3.2b correction item (λ� μ�,���Indicator). ).error In Models and (3.2b) and competitive effects [parameters In Models (3.2a)(3.2a) (3.2b) and various competitive effects includes correction item (λ ).various Inand Models (3.2a) and (3.2b) and various competitive effects [parameters of ((ζ,ξ In Models (3.2a) and (3.2b) and various[paramete competi � μ�,��� In Models (3.2a) and (3.2b) and various competitive effects (panel)], Eq. 3.3various can be deduced by Eq.[parameters 3.2a. The [parameters pass-through effect In Models (3.2a) and (3.2b) and competitive effects of ((o includes error correction item (λ μ ). (panel)], Eq. 3.3 can be deduced by Eq. 3.2a. The pass-through effect of Interest Rate � can �,��� (panel)], Eq. 3.3 be deduced by Eq. 3.2a. The pass-through effect of Interest R cts [parameters of ((ζ,ξ,θ) etitive effects [parameters of ((ζ,ξ,θ) of (panel)], Eq. 3.3 can be deduced by Eq. 3.2a. The pass-through effect (panel)], Eq. 3.3 can be deduced by Eq. 3.2a. The (panel)], Eq. 3.3 can be deduced by Eq. 3.2a. The pass-through effect Spread Model Eq. (3.2a) may be direct and complete. We assume ηof InandModels (3.2a) and (3.2b) and various competitive effects [parameters of ((ζ,ξ,θ) 3.2a)effects and (3.2b) various competitive effects [parameters ofby ((ζ,ξ,θ) �p tive [parameters of ((ζ,ξ,θ) (panel)], Eq. 3.3 can be deduced Eq. 3.2a. The pass-through effect of Interest Spread Model Eq. (3.2a) may be direct and complete. We assume ηmay 1;beθWe =ηassume 0 =to Spread Model Eq. (3.2a) may be direct and complete. We assume 1;((ζ,ξ,θ θη�= =0 effect of Interest Rate � = eugh pass-through effect of Interest Rate In Models (3.2a) and (3.2b) and various competitive effects [parameters � of Spread Model Eq. (3.2a) direct and compl Spread Model Eq. (3.2a) may be direct and complete. obtain Interest Rate Spread Model Eq. (3.3). of Interest Rate Spread Model Eq. (3.2a) may be direct and complete. We assume 3.3 can be deduced by Eq. 3.2a. The pass-through effect of Interest Rate ass-through effect Interest Rate (panel)], Eq. 3.3 canand be deduced byvarious Eq. 3.2a. The pass-through effect of Interest Rate Interest Rate Spread Model Eq. (3.3). Inθbeof Models (3.2a) (3.2b) and competitive effects of ((ζ,ξ,θ Model Eq. (3.2a) may be direct and complete. We[parameters assume η� (3.3). = 1; θ = obtain Interest Spread Eq.Model (3.3). η� assume =may 1; = to mplete. We =Spread 1;θEq. θ=obtain 0 to Interest Rate Spread Model obtain Interest Eq. (3.3). � 0 lassume Eq.We (3.2a) and complete. We assume ηRate = 1; θ Rate = Model 0 Spread toobtain (panel)], can be deduced Eq. 3.2a. The pass-through effect of=Eq. Interest Rate ete. assume η� η=direct 1; 0=3.3 � by to obtain Interest Rate Spread Model Eq. (3.3). Spread Model Eq. (3.2a) may be direct and complete. We assume η 1; θ = to (BR − MR ) = C + δBI + K D + ζD ∗ BI + μ �,� �,� �,� � � � �,� �,� � obtain Interest Rate Spread Model Eq. (3.3). (panel)], Eq. 3.3 can be deduced by Eq. 3.2a. The pass-through effect of Interest Rate t Rate Spread Model Eq.Model (3.3). (BR �,�Eq. − MR Cmay + δBI + K+ ζD+ ∗complete. BI +− μMR (3.3) (BR MR )�,�= C K(BR + ζD BI +assume μ+ (3 �,� ) = � DδBI � )+and �+ �,� Spread (3.2a) be direct We η = 1; θ = to �,� − �,� �,� C � D�,� � �,� � �∗D�,� �,�=ζD �,�BI ) C δBI + K D + ζD ∗ BI + (BR − MR = δBI + K + ∗ + μ � �,� � � � �,� �,� �,� �,� � � �,� �,� obtain Interest Rate Spreadmay Model Eq. (3.3). Spread Model Eq. (3.2a) be direct and complete. We assume η = 1; θ = to The Spread Model is adopted. Hypothesis 2: In a highly competitiv (3.3) � + μ (3.3) Rate Spread Model Eq. (3.3). (3.3) + K � D� Interest + ζD�(3.3) ∗The BI + μ�,� (3.3) Model isThe adopted. Hypothesis 2: InSpread a �,�highly competitive market, the (BR − MR ) = C + δBI + K D + ζD ∗ BI + μ ( ,�μ)�,�=�,�C + δBI�,�obtain �,�Spread �,� The Spread Model is adopted. Hypothesis 2: In a highly competitive market, �,� �,� � � � �,� The Model is adopted. Hypothesis 2: In Spread Model is adopted. Hypothesis 2: In a highly competitive spread (bank interest rates market interest rates) is low. The obtain Interest Rate Spread Model Eq. (3.3).interest rates) is low. Theoretically, the spread (bank interest rates market (BR − MR ) = C + δBI + K D + ζD ∗ BI + μ (3.3) spread (bank interest rates market interest rates) is low. Theoretically, yIn competitive market, the a highly competitive market, �,� �,� �,�spread � � market, � theof �,� �,�is spread (bank interest ratesthat - of market interest interest rates market interest rates) is low. Theor competitive spread Taiwan smaller than mainland Chin is competitive adopted. Hypothesis 2:the In aC highly competitive aModel highly market, the (BR − MR = + δBI + K � D(bank +smaller ζD BI +a2: μ-ofishighly (3.3) competitive spread of Taiwan than that mainland as loan as �,� the �,� )the �,� �isof � ∗of �,� �,� The Spread Model is adopted. Hypothesis In athat highly competitive marke competitive spread Taiwan is2: smaller than ofChina, mainland China, the lo low. The Spread Model islow. adopted. Hypothesis In competitive rates)isTheoretically, islow. low. competitive spread ofthan Taiwan is the smaller than tha competitive spread Taiwan smaller that of mainland China, interest rates of Taiwan during the research period were lower than thos interest rates - Theoretically, market interest rates) is Theoretically, the (BR − MR ) = C + δBI + K D + ζD ∗ BI + μ (3.3) ates) Theoretically, the �,�loan interest �,� ratesinterest �,� during � the � research � the �,� �,�period of Taiwan period were lower than those ofthe mainland rates of Taiwan during research were lower than those of mainla nland China, as the The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the hat of mainland China, as the loan interest rates of Taiwan during research period spread (bank interest rates market interest rates) is low. Theoretically interest rates of Taiwan during the research period were lower than those China. See Hypothesis 2, as follows: H : ζ(𝑇) − ζ(𝐶) > 0; H : ζ(𝑇 market, the spread (bank interest rates market interest rates) is low. of Taiwan is smaller than that of mainland China, as the loan �� �� tpread of mainland China, as theChina. loan See Hypothesis 2, as Hypothesis follows: H : ζ(𝑇) − ζ(𝐶) > 0;H H :2,ζ(𝑇) −H ζ(𝐶) ≤H0.H The Spread Model islower adopted. 2:2,spreads In a :that highly competitive market, the China. See Hypothesis 2,means as H ζ(𝑇) −��ζ(𝐶) >− 0;Theoretically, ζ(𝑇) −�� ζ(𝐶) wer thanlower those than of mainland ��follows: �� d were those of mainland �� �� China. See Hypothesis as follows: ζ(𝑇) −≤ China. See Hypothesis assmaller follows: ζ(𝑇) ζ(𝐶) >: China. 0; : ζ(𝑇) ζ(T) and ζ(C) the of Taiwan and mainland �� : as spread (bank interest rates -those market interest rates) is the of Taiwan the research period were than of mainland competitive spread of Taiwan is smaller than of :low. mainland China, the were lowerduring than those of mainland Theoretically, the competitive spread of Taiwan is than that of The Spread Model is adopted. Hypothesis 2: In a highly competitive market, the ζ(T) and ζ(C) means the spreads of Taiwan and mainland China. ζ(T) and ζ(C) means the spreads of Taiwan and mainland China. 0; H : ζ(𝑇) − ζ(𝐶) ≤ 0. − ζ(𝐶) > 0; H : ζ(𝑇) − ζ(𝐶) ≤ 0. ζ(T) and ζ(C) means the spreads of Taiwan and mai spread (bank interest rates market interest rates) is low. Theoretically, the �� ζ(T) and ζ(C) means the spreads of Taiwan and mainland China. �� ypothesis follows: H�� :≤ ζ(𝑇) − ζ(𝐶) > 0; interest H��during ζ(𝑇) −the ζ(𝐶) ≤than 0. during ζ(𝐶) > 0; 2,Has :mainland ζ(𝑇) −interest ζ(𝐶) 0. competitive spread ofloan Taiwan smaller that of China, as the loan rates of Taiwan research period were lower than those of main �� China, as the rates of Taiwan the mainland research period 3.2.3 Pass-Through Speed Model spread (bank interest rates -: is market interest rates) is low. Theoretically, the hina. ainland China. meansChina. the spreads of Taiwan3.2.3 and mainland China. competitive spread of Taiwan is smaller than that of mainland China, as the loan Pass-Through Speed Model nland 3.2.3 Pass-Through Speed Model 3.2.3 Pass-Through Speed Model 3.2.3 Pass-Through Speed Model interest rates of Taiwan during the research period were lower than those of mainland China. See Hypothesis 2, as follows: H : ζ(𝑇) − ζ(𝐶) > 0; H : ζ(𝑇) − ζ(𝐶) were lower than those of mainland China. See Hypothesis 2, as follows: �� �� competitive spread of Taiwan isorder smaller thatwere of mainland China, asEq. the loan Inthe to verifythan the speed equation, thisthan paper rewrites (3.2b) in interest ratesand Taiwan during research period lower those of mainland hrough Speed China. Model ζ(T) Inof order tomeans verify the speed equation, this paper rewrites Eq. (3.2b) into Eq. (3.2c); ζ(C) the spreads of Taiwan and mainland China. See Hypothesis 2, as follows: H :MR_(i,t), ζ(𝑇) − ζ(𝐶) > 0; H :rewrites ζ(𝑇) − ζ(𝐶) ≤(3.2 0r In order toIn verify the speed equation, this rewrites Eq. (3.2b) into Eq. �� �� In order to paper verify the speed equation, this paper interest rates of Taiwan during the research period were lower than those of mainland order to verify the speed equation, this paper Eq. (3.2b) int and mDBI_(i,t) virtual variable (D), Boone Indicator(BI) China. See Hypothesis 2, as follows: H : ζ(𝑇) − ζ(𝐶) > 0; H : ζ(𝑇) − ζ(𝐶) ≤ and mDBI_(i,t) MR_(i,t), virtual variable (D), Boone (D), Indicator(BI), and market �� �� and mDBI_(i,t) MR_(i,t), variable Boone Indicator(BI), and(D), Eq. (3.2b) intoζ(T) Eq. (3.2c); rewrites rewrites Eq. (3.2b) into Eq. (3.2c); and mDBI_(i,t) MR_(i,t), virtual and ζ(C) means the 2, spreads of Taiwan and mainland China. and mDBI_(i,t) MR_(i,t), virtual (D), Indicator(BI), interest rates (MR) are multiplied together to obtainvariable coefficient verify theEq. speed equation, this paper rewrites Eq.as (3.2b) into Eq. China. See Hypothesis follows: H(3.2c); :virtual ζ(𝑇) − ζ(𝐶) variable > 0;obtain H :Boone ζ(𝑇) − ζ(𝐶) ≤mar 0m (3.2b) into Eq. (3.2c); �� �� interest rates (MR) are multiplied together tomultiplied obtain coefficient m, in order to in order 3.2.3 Pass-Through Speed Model interest rates (MR) are multiplied together to coefficient m, ζ(T) and ζ(C) means the spreads of Taiwan and mainland China. ndicator(BI), and market ,Boone Boone Indicator(BI), and market interest rates (MR) are multiplied together tom,o interest rates (MR) are together to obtain coefficient determine when the competition of Taiwan is greater than mainland ,t) MR_(i,t), virtual variable (D), Boone Indicator(BI), and market Indicator(BI), and market ζ(T) and means the the spreads oftheTaiwan and China. determine when competition of Taiwan ismainland greater than mainland China; the determine when competition Taiwan greater mainland China;is ifm oefficient m,multiplied in order toinζ(C) obtaincoefficient coefficient order determine when the ofifcoefficient Taiwan gre determine when the competition ofisTaiwan greater mainland C pass-through speed isoffaster, while thecompetition pisthan value ofthan 3.2.3 Pass-Through Speed Model (MR) are coefficient m, while in order btain m,m, intogether order tototo obtain pass-through speed isModel faster, the tois ppass-through value ofwhile coefficient m is (3.2b) significant. In order to verify the speed equation, this paper rewrites Eq. into pass-through speed is faster, while the p value of coefficient m is interest significa mainland China; if the 3.2.3 Pass-Through Speed reater than mainland China; if the speed is faster, while the pEq. value pass-through speed faster, the p value of coefficient m (3 is Hypothesis highly competitive market, short-term bank en the of Taiwan is greater than mainland China;3:ifIn athe ater thancompetition mainland China; if the

(BR �,� − MR �,� ) = C + δBI�,� The + K �Spread D� + ζDModel + adopted. μ�,� H � ∗ BI�,� is + μ (3.3) �,� s adopted. Hypothesis 2: In a highly competitive market, the spread (bank interest rates - ma The Spread Model is adopted. Hypothesis 2: In a highly co t rates - market interest rates) is low. Theoretically, the competitive spread of Taiwan is s n a highly competitive market, the spread interestEmpirical rates - market Models of(bank Different Markets: 79 rates) interest rates ofinterest Taiwan during is thelor Taiwan is smaller than that of mainland China, as theAnloan rates) is low.Study Theoretically, the China competitive spread of Taiwan is smaller than that of mainla of the Markets of Mainland and Taiwan: 73-88 n during the research period were lower than those of mainland China. See Hypothesis 2, as follow hat of mainland China, as the loan interest rates of Taiwan during the research period were lower meansthe the spreads of T 2, as lower follows: : ζ(𝑇) ζ(𝐶) > 0; H�� : ζ(𝑇) − ζ(𝐶) ≤ 0. ζ(T) and ζ(C) means ds were thanH�� those of − mainland China. See Hypothesis 2, as follows: H�� : ζ(𝑇) − ζ(𝐶) > 0; he spreads of Taiwan and mainland China. spreads − ζ(𝐶) > 0; H�� : ζ(𝑇)of−Taiwan ζ(𝐶) ≤and 0. mainland ζ(T) andChina. ζ(C) means the spreads Taiwan and mainland China 3.2.3 of Pass-Through Speed Model ainland China. 3.2.3 Pass-Through Speed ​​Model peed Model

In order to verify the speed equati and mDBI_(i,t) MR_(i,t), virtual e speed equation,Inthis paper rewrites Eq. (3.2b) intothis Eq.paper (3.2c); order to verify the speed equation, rewrites Eq. (3.2b) into Eq. rewrites In order to verify the speed equation, this paper Eq. interest rates (MR) are multiplied _(i,t), virtual variable (D),mDBI_(i,t) Boone Indicator(BI), market (3.2c); and virtualand variable (D), Boone Indicator(BI), and Boone Indi rewrites Eq. (3.2b) into Eq. (3.2c); MR_(i,t), and mDBI_(i,t) MR_(i,t), virtual variable (D), when the competition of are multiplied together to obtain coefficient m, in together order totodetermine market interest rates (MR) are multiplied obtain coefficient m, in Boone Indicator(BI), and market interest rates (MR) are multiplied together pass-through speedtois obtain faster, coeff whi ompetition of Taiwan is greater than mainland China; if the order to determine when the competition of Taiwan is greater than mainland obtain coefficient m, in order to determine when the competition of Taiwan is greater than m Hypothesis 3: In a highly competiti s faster, while China; the p ifvalue of coefficient m is significant. the pass-through speed is faster, whileisthe p valuewhile of coefficient m is of coeffic reater than mainland China; if the pass-through speed faster, the p value sensitive than market interest rates. hly competitive market, short-term bank interest rates are more Hypothesis 3: In a highly competitive market, short-term market, bank interest ue of coefficientsignificant. m is significant. Hypothesis 3: In a highly competitive short-term bank H�� : ξ(𝑇) − ξ(C) ≤ 0. ξ(T) and nterest rates. Hypothesis 3,more as follows: H�� :interest ξ(𝑇) −rates. ξ(C)See > 0; ort-term bank See interest rates aresensitive rates are more than market Hypothesis as follows: 3, as follow sensitive than market interest rates. See3, Hypothesis ≤ 3, 0. as ξ(T) and ξ(C) of Taiwan and mainland China, respectively. is follows: H��represent : ξ(𝑇) − the ξ(C)pass-through > 0; H�� : speeds represent the pass-thr ξ(𝑇) − ξ(C) ≤ 0. ξ(T) and ξ(C) represent espectively. nt the pass-through of Taiwan the speeds pass-through speeds of TaiwanChina, and mainland China, respectively. and mainland respectively. 4. Analysis of Empirical Results cal Results sis

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.

Study of the Markets of Mainland China and Taiwan: 73-88

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, H10 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. Thus, H20 is rejected.

Dependent Variable: Bank Interest Rates (General Regression) Independent Variable Intercept

Correlation Coefficient

Standard Deviation

T Statistics

P Value

(continued)

Study of the Markets of Mainland China and Taiwan: 73-88

Dependent Variable: Bank Interest Rates (General Regression) Independent Variable

Correlation Coefficient

Standard Deviation

T Statistics

P Value

Boone Indicator multiplies market interest rates

Dummy variable

Dummy variable, Boone Indicator, and market interest rates multiply together

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, H20 is also rejected.

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.

Dependent Variable: Loan Interest Rates of Banks Minus Market Interest Rates (General Regression) Independent Variable

Correlation Coefficient

Standard Deviation

T Statistics

P Value

Intercept

Boone Indicator

Dummy variable

Dummy variable multiplies Boone Indicator

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 H30 is rejected.

Study of the Markets of Mainland China and Taiwan: 73-88

Dependent Variable: Loan Interest Rates of Banks Minus Market Interest Rates (Newey-west) Independent Variable

Correlation Coefficient

Standard Deviation

T Statistics

P Value

Intercept

Boone Indicator

Dummy variable

Dummy variable multiplies Boone Indicator

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. 5.