Interest Rate Pass-Through in Three EU Candidate Countries: The Case of Albania, North Macedonia and Serbia
Journal
International Economics and Business, Vol. 5, No. 2
Date Issued
2019
Author(s)
Velickovski, Igor
Abstract
The objective of the paper is to assess the interest rate pass-through in three EU candidate
countries that is Albania, North Macedonia and Serbia. We rely on an error-correction model
using monthly data over the period 2005-2019. Results suggest a complete interest rate
pass-through in Albania, albeit it has been weakened during the economic and financial crisis. The relatively fast speed of adjustment indicates an effective interest rate transmission
channel. In the Macedonian case, the changes of the monetary policy rate are transmitted
completely to the bank lending rate, but not to the bank borrowing rate. The transmission via
the money market rate has improved after the global economic and financial turmoil. In the
case of Serbia, the results also suggest complete interest rate pass-through indicating that the
monetary policy rate changes are transmitted into retail rates offered by the banks to savers
and borrowers in the long run. Nevertheless, the speed of adjustment is relatively slow. In
general, the estimated speed and extent of the response of money market interest rate and
bank retail interest rates to changes in the monetary policy rate gives an indication of
effective interest rate transmission channel in the case of Albania and Serbia. On the other
hand, it is moderately effective in the case of North Macedonia given that the central bank
rate changes affect mainly bank lending rate but not borrowing rate.
countries that is Albania, North Macedonia and Serbia. We rely on an error-correction model
using monthly data over the period 2005-2019. Results suggest a complete interest rate
pass-through in Albania, albeit it has been weakened during the economic and financial crisis. The relatively fast speed of adjustment indicates an effective interest rate transmission
channel. In the Macedonian case, the changes of the monetary policy rate are transmitted
completely to the bank lending rate, but not to the bank borrowing rate. The transmission via
the money market rate has improved after the global economic and financial turmoil. In the
case of Serbia, the results also suggest complete interest rate pass-through indicating that the
monetary policy rate changes are transmitted into retail rates offered by the banks to savers
and borrowers in the long run. Nevertheless, the speed of adjustment is relatively slow. In
general, the estimated speed and extent of the response of money market interest rate and
bank retail interest rates to changes in the monetary policy rate gives an indication of
effective interest rate transmission channel in the case of Albania and Serbia. On the other
hand, it is moderately effective in the case of North Macedonia given that the central bank
rate changes affect mainly bank lending rate but not borrowing rate.
Subjects
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