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Determinants of Interest Rate Pass-through for Emerging Market Economies: The Role of Financial Market Structure

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Abstract

It is essential for central banks to assess whether or not the pass-through from monetary policy rates to credit and deposit interest rates is complete in order to ensure price stability. In this article, we analyze interest rate pass-through process for emerging market economies. Since emerging market countries lack large panel data sets that are typically available for developed countries, it is hard to analyze the determinants of pass-through coefficients for emerging market countries. To overcome the data issue, we developed a country selection procedure that minimizes heterogeneity among the countries included in the analysis. Our findings indicate that banking sectors’ competition plays a more important role for emerging market countries than their developed counterparts.

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Notes

  1. Detailed version of the robustness test is available upon request.

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Authors and Affiliations

  1. University of Mississippi, 367 Holman Hall University, Oxford, MS, 38655, USA

    Nilufer Ozdemir

  2. Kaplan University, Davenport, IA, USA

    Cuneyt Altinoz

Authors
  1. Nilufer Ozdemir
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  2. Cuneyt Altinoz
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Correspondence to Nilufer Ozdemir.

Appendix: Robustness Test

Appendix: Robustness Test

In this section, the analysis is repeated by separating the countries that have already joined the EU from countries that remain out. This time, Macedonia and Croatia are selected as non-member countries with similar characteristics. Table 10 below replicates the results of Table 8 for them.

Table 10 Determinants of interest pass-through coefficients for non-EU members
Full size table

Table 10 shows that the results are in line with the findings of Table 8 for the z-score, concentration, and state banks shares variables. However, the coefficient of the cost-income ratio is found to be almost zero here. This shows that while the health of the banking sector and competition variables play similar roles, the profitability of the banking sector does not seem to be important for the determination of the pass-through coefficients for non-member countries.Footnote 1

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Ozdemir, N., Altinoz, C. Determinants of Interest Rate Pass-through for Emerging Market Economies: The Role of Financial Market Structure. Int Adv Econ Res 18, 397–407 (2012). https://doi.org/10.1007/s11294-012-9377-9

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