Interest Rate Transmission in a Dollarized Economy: the Case of Serbia
This paper investigates the efficiency of monetary policy in Serbia, ? highly dollarized economy. Results suggest that the interest rate channel is shaded, and that it is dependent on the degree of dollarization. Interest rate movements are primarily determined by the movement of interest rates in the Euro zone. The impact the 2W repo rate of NBS on the lending interest rates becomes significant only after we control for the level of dollarization. The pass-through of 2W repo rate to interest rates is observed only when the dollarization falls below 64.5%. Maximum potential pass-through of 2W repo rate to interest rates (achieved at zero dollarization) is between 0.169 and 0.820, depending on the model specification.
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