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

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  • Balázs Égert

    ()

  • Jesus Crespo-Cuaresma

    ()

  • Thomas Reininger

    ()

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.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp851.

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Length: pages
Date of creation: 01 Nov 2006
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Handle: RePEc:wdi:papers:2006-851

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Keywords: interest rate pass-through; monetary transmission mechanism; transition economies; Central and Eastern Europe; Austria; Germany; Spain.;

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  1. Leonardo Gambacorta, 2004. "How Do Banks Set Interest Rates?," NBER Working Papers 10295, National Bureau of Economic Research, Inc.
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  16. 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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