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Interest rate pass-through in Serbia: evidence from individual bank data

Author

Listed:
  • Mirjana Miletic, Aleksandar Tomin, Andjelka Djordjevic
  • Mirjana Miletic

    (National Bank of Serbia)

  • Aleksandar Tomin

    (National Bank of Serbia)

  • Andjelka Djordjevic

    (National Bank of Serbia)

Abstract

The paper considers interest rate pass-through in Serbia, based on evidence from individual bank data. Analysis was conducted for the period from September 2010 to May 2021 using panel cointegration tests and estimates obtained by the fully modified ordinary least square method (FMOLS), dynamic ordinary least square method (DOLS), pooled mean group method (PMG) and mean group method (MG). Estimation results suggest that there is a significant long-run relationship between bank lending rates in national currency and rates in the domestic money market. Interest rate pass-through from money market to rates on dinar loans is complete for both corporate and household loans, whereas the reaction is stronger and faster in case of corporates, as they have more alternative sources of finance than households. Estimates obtained by the FMOLS, DOLS, PMG and MG methods are quite similar, indicating the robustness of the results. The pass-through estimation is also performed for the shorter period – September 2010 to end-2014, with results suggesting the interest rate channel gained more strength over time, thanks to the increasing interbank competition, higher economic growth, and more favorable macroeconomic prospects of the economy. Statistically significant impact of the risk premium measured by EMBI on dinar corporate loans is also confirmed. Given the fact that around two thirds of loans are FX-indexed, we have estimated the influence of 3M and 6M EURIBOR to rates on euro-indexed corporate and household loans. Long-run relationship and statistically significant impact of country risk premium on ?uro-indexed interest rates is also confirmed, along with the high pass-through of EURIBOR. In addition, we tested whether interest rate pass-through is affected by some individual bank characteristics such as size, strength of deposit base, liquidity, quality of credit portfolio, capital position and the share of dinar loans in total loans.

Suggested Citation

  • Mirjana Miletic, Aleksandar Tomin, Andjelka Djordjevic & Mirjana Miletic & Aleksandar Tomin & Andjelka Djordjevic, 2021. "Interest rate pass-through in Serbia: evidence from individual bank data," Working Papers Bulletin 4, National Bank of Serbia.
    • Handle: RePEc:nsb:bilten:4
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    References listed on IDEAS

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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • 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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