Smoothing the Key Rate Pass-Through: What to Keep in Mind When Interpreting Econometric Estimates

Henry Penikas

Russian Journal of Money and Finance, 2023, vol. 82, issue 3, 3-34

Abstract: In 2023, the Bank of Russia plans to summarise the results of its Monetary Policy Review (MPR). One of the tasks to be accomplished as part of the MPR is to determine how effectively (quickly and fully) changes in the key rate are translated into credit and deposit rates. While it is common in academic literature around the world to note the lack of effectiveness of the key rate pass-through, this paper clearly shows that this conclusion is the result of an incomplete and incorrect understanding of the functioning of banks and the economy, as well as of an incorrect interpretation of the estimates of econometric models. To demonstrate this claim, this paper provides a review of more than 60 studies published since 2000 and considers examples of estimates of the pass-through using artificial and actual data.

Keywords: ECM; ARDL; IRPT; MPR; key rate; monetary policy; Russia; inflation targeting (search for similar items in EconPapers)
JEL-codes: C32 E31 E43 E58 F31 F40 F41 F45 G01 G21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:bkr:journl:v:82:y:2023:i:3:p:3-34

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