Abstract
This study tries to investigate the asymmetry of interest rate pass-through in Albania over the period 2002m01: 2013m03. An OLS (Ordinary Least Square) approach is employed to take into account solely the long-run dynamics of such asymmetry. More specifically, the study attempts to investigate whether responses of wholesale (represented by the interbank and T-bills’ yields) and retail interest rates (deposit and credit) to downward and upward changes in the policy rate are symmetric or not. To the best of our knowledge, this is the first attempt focusing on the asymmetry of the interest rate pass-through, extending the author’s previous study (unpublished, to be presented at EBEEC Conference in Istanbul, 9-12 May), which focused mainly on the speed and magnitude of the interest rate pass-through, over a shorter time period. Main findings of this study show that the pass-through of key policy rate to wholesale and retail interest rates is asymmetric. More specifically, the 7-day interbank rate, the 6- and 12-month T-bills’ yields and the deposit rate react more strongly to a negative change rather than to a positive change in policy rate. We believe that the empirical results of this study might be useful for the increase in the efficiency of monetary policy implementation, providing useful information of the Albanian monetary policy transmission mechanism. DOI: 10.5901/ajis.2013.v2n9p539
Highlights
It is widely proven, theoretically and empirically, that monetary policy affects real economy through various channels, among which the most common are: interest rate channel, exchange rate channel and credit channel
It is argued that response of market and retail interest rates to monetary policy rate plays an important role in most of monetary policy transmission channels
The speed and magnitude that monetary policy will convey through transmission channels depend on the characteristics of the monetary policy rate pass-through to other interest rates of interbank, primary and retail market
Summary
Theoretically and empirically, that monetary policy affects real economy through various channels, among which the most common are: interest rate channel, exchange rate channel and credit channel. Such pass-through has been the focus of a preceding study2, which has estimated the transmission of monetary policy rate to wholesale interest rates (interbank and T-bills’ yields) and to retail interest rates (deposit and lending interest rates), by using a VECM methodology, over the period 2006m01:2013m03.
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