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

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Author Info

  • Jesus Crespo Cuaresma

    ()
    (Oesterreichische Nationalbank)

  • Balázs Égert

    ()
    (Oesterreichische Nationalbank)

  • Thomas Reininger

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

In this study, we seek to better understand the interest rate pass-through in fi ve Central and Eastern European countries – the Czech Republic, Hungary, Poland, Slovakia and Slovenia, the CEE-5 – and compare it with the pass-through in selected euro area countries – Austria, Germany and Spain. We fi nd that the pass-through is not operational for long-term market rates because of the unstable yield curve. We fi nd evidence that the pass-through from policy rates even transits through short-term market rates to long-term retail rates. Although nearly complete pass-through is detected for corporate lending rates in a majority of the CEE-5, 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. Although the pass-through is usually higher in the CEE-5 than in Austria and Germany, it has been declining over time in particular in Hungary and (with respect to lending rates) in Poland. The adoption of the euro seems to have slightly increased the pass-through in Spain and Austria but not in Germany.

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Bibliographic Info

Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.

Volume (Year): (2006)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:onb:oenbfi:y:2006:i:1:b:2

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  1. Sander,Harald & Kleimeier,Stefanie, 2003. "Convergence in Eurozone retail banking? What interest rate pass-through tells us about monetary policy transmission, competition and integration," Research Memorandum 051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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  3. Kleimeier,Stefanie & Sander,Harald, 2004. "Interest Rate Pass-through in an Enlarged Europe: The Role of Banking Market Structure for Monetary Policy Transmission in Transition Countries," Research Memorandum 045, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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  11. Weth, Mark A., 2002. "The pass-through from market interest rates to bank lending rates in Germany," Discussion Paper Series 1: Economic Studies 2002,11, Deutsche Bundesbank, Research Centre.
  12. Jesús Crespo-Cuaresma & Balázs Égert & Thomas Reininger, 2004. "Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland," William Davidson Institute Working Papers Series 2004-671, William Davidson Institute at the University of Michigan.
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