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

Mirjana Miletic, Aleksandar Tomin, Andjelka Djordjevic, Mirjana Miletic, Aleksandar Tomin and Andjelka Djordjevic
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Mirjana Miletic: National Bank of Serbia
Aleksandar Tomin: National Bank of Serbia
Andjelka Djordjevic: National Bank of Serbia

Working Papers Bulletin from 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.

Keywords: interest rate pass-through; panel; monetary transmission mechanism (search for similar items in EconPapers)
JEL-codes: C53 E17 E58 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2021-09
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