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Transmission of the Key Policy Rate To Commercial Bank Interest Rates: VAR-Based Evidence from Ukraine

Author

Listed:
  • Hanna Telnova
  • Serhii Smerichevskyi
  • Alla Ivashchenko
  • Olena Rybak

Abstract

The purpose of the article is to assess the direct and indirect impact of the discount rate on credit and deposit rates in the Ukrainian banking system, taking into account inflation dynamics and monetary transmission time lags. The methodological basis of the study is a vector autoregression (VAR) model, supplemented by impulse response analysis (IRF) and forecast error variance decomposition (FEVD), which made it possible to reproduce the time structure of monetary shock transmission through the interest rate channel. The results show that an increase in the policy rate raises lending rates with a lag of about two months, while deposit rates respond more gradually, and inflation exhibits a weaker and slower short-term reaction. It was found that the key channel for transmitting the monetary impulse to inflation is the deposit rate. The scientific novelty lies in the comprehensive combination of IRF and FEVD analysis to reconstruct the time architecture of monetary transmission and in substantiating the role of the deposit channel in shaping inflation dynamics. The practical significance of the results lies in the possibility of using them for macroprudential analysis and improving price stability policy.

Suggested Citation

  • Hanna Telnova & Serhii Smerichevskyi & Alla Ivashchenko & Olena Rybak, 2026. "Transmission of the Key Policy Rate To Commercial Bank Interest Rates: VAR-Based Evidence from Ukraine," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 114-130.
    • Handle: RePEc:bas:econst:y:2026:i:5:p:114-130
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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