Interest Rate Pass-Through in Central and Eastern Europe: Reborn from Ashes Merely to Pass Away?

27 Pages Posted: 27 Dec 2007

See all articles by Balázs Égert

Balázs Égert

Organization for Economic Co-Operation and Development (OECD); CESifo (Center for Economic Studies and Ifo Institute); Université Paris X Nanterre - Department of Economics; William Davidson Institute

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History

Thomas Reininger

Österreichische Nationalbank

Date Written: November 2006

Abstract

In this study, we seek to better understand the interest rate pass-through in five Central and Eastern European countries - the Czech Republic, Hungary, Poland, Slovakia and Slovenia, the CEE-5. Our pass-through estimates for several retail rates are generally lower than those reported in the literature, given the absence of cointegration between policy rates and long- or even short-term market rates. In addition, the pass-through has been declining over time in the CEE-5, and we argue that it is likely to decrease further in the future. Finally, the pass-through appears similar in the CEE-5 than in Spain and is higher than in core euro area countries. Hence, euro adoption by the CEE-5 would not further increase heterogeneity within the euro area with regard to the interest rate passthrough. However, substantially more research is needed to establish commonalities and differences between the CEE-5 and the euro area with respect to the reaction of prices and output to monetary policy action.

Keywords: interest rate pass-through, monetary transmission

JEL Classification: E43, E50, E52, C22, G21, O52

Suggested Citation

Egert, Balazs and Crespo Cuaresma, Jesús and Reininger, Thomas, Interest Rate Pass-Through in Central and Eastern Europe: Reborn from Ashes Merely to Pass Away? (November 2006). William Davidson Institute Working Paper No. 851. Available at SSRN: https://ssrn.com/abstract=949491 or http://dx.doi.org/10.2139/ssrn.949491

Balazs Egert (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Université Paris X Nanterre - Department of Economics

Nanterre Cedex, 92001
France

William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Jesús Crespo Cuaresma

University of Innsbruck - Department of Economic Theory, Economic Policy and Economic History ( email )

Universitaetsstrasse 15
Innsbruck, A - 6020
Austria

Thomas Reininger

Österreichische Nationalbank ( email )

Wien 9, Otto Wagner Platz
Postfach 61
A-1011 Wien, 1090
Austria

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