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What drives the adjustments of loan interest rates in Bulgaria? Results from a vector autoregression model

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  • Mihail Mihaylov

Abstract

Using vector autoregressionmodel, this study examines the adjustments of loan interest rates in Bulgaria to shocks in depositinterest rates, business climate and operating costs in the banking system, taking into account theimpact of money market interest rate in the euro area. The analysis attempts to identify potentialdifferences in the reaction of interest rates on loans extended to different sectors of borrowers, loanswith different currency denomination and credit maturity. Impulse responses of loan interest rates toshocks in the other endogenous variables imply that: (1) in the short-run, a shock in the businessclimate indicator affects only interest rates on corporate loans; (2) in the short-run, operating costs in thebanking system do not have statistically significant impact on loan interest rates; (3) a shock in theweighted average interest rate on time deposits induces statistically significant adjustment of interestrate on household loans.

Suggested Citation

  • Mihail Mihaylov, 2015. "What drives the adjustments of loan interest rates in Bulgaria? Results from a vector autoregression model," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 86-103.
    • Handle: RePEc:bas:econth:y:2015:i:5:p:86-103
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    References listed on IDEAS

    as
    1. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 136, European Central Bank.
    2. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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