Abstract

An important component of monetary policy transmission is the pass-through from financial market interest rates, directly influenced or targeted by central banks, to the rates that banks charge firms and households. Yet the available evidence on the strength and speed of the pass-through is mixed and varies across countries, time periods, and even individual banks. We examine the pass-through mechanism using a unique data set of Czech loan and deposit products and focus on bank-level determinants of pricing policies, especially cost efficiency, which we estimate employing both stochastic frontier and data envelopment analysis. Our main results are threefold: First, the long-term pass-through was close to complete for most products before the financial crisis, but has weakened considerably afterward. Second, banks that provide high rates for deposits usually charge high loan markups. Third, cost-efficient banks tend to delay responses to changes in the market rate, smoothing loan rates for their clients.
A correlation matrix of ten bank-level characteristics, drawn as shaded circles, in which the two cost-efficiency measures correlate at 0.83 and both fall as bank size rises
Fig: Correlations between the bank-level characteristics that explain pricing policies.

The full text on this site is Czech National Bank Working Paper 9/2015, the openly available version. The article was published in Economic Modelling in 2016.

Reference: Tomas Havranek, Zuzana Irsova, Jitka Lesanovska (2016), "Bank efficiency and interest rate pass-through: Evidence from Czech loan products." Economic Modelling 54: 153-169. doi.org/10.1016/j.econmod.2016.01.004

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How to cite

Tomas Havranek, Zuzana Irsova, Jitka Lesanovska (2016), "Bank efficiency and interest rate pass-through: Evidence from Czech loan products." Economic Modelling 54: 153-169. doi.org/10.1016/j.econmod.2016.01.004

BibTeX 
@article{havranek2016passthrough,
  author  = {Tomas Havranek and Zuzana Irsova and Jitka Lesanovska},
  title   = {Bank efficiency and interest rate pass-through: Evidence from Czech loan products},
  journal = {Economic Modelling},
  volume  = {54},
  pages   = {153--169},
  year    = {2016},
  doi     = {10.1016/j.econmod.2016.01.004},
}