Template-Type: ReDIF-Paper 1.0
Author-Name: Gabor Hajnal
Author-X-Name-First: Gabor
Author-X-Name-Last: Hajnal
Author-Email: hajnalg@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (the Central Bank of Hungary)

Author-Name: Zsuzsanna Hosszu
Author-X-Name-First: Zsuzsanna
Author-X-Name-Last: Hosszu
Author-Email: hosszuzs@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (the Central Bank of Hungary)

Author-Name: Akos Attila Ozoroczy
Author-X-Name-First: Akos Attila
Author-X-Name-Last: Ozoroczy
Author-Email: akos.ozoroczy@gmail.com
Author-Workplace-Name: Student at John Von Neumann University

Author-Name: Balint Dancsik
Author-X-Name-First: Balint
Author-X-Name-Last: Dancsik
Author-Email: dancsikb@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (the Central Bank of Hungary)

Title:Estimating Deposit Interest Rate Pass-Through in Central and Eastern European Countries Using Wavelet Transform and Error Correction Model

Abstract: Our study deals with interest rate pass-through for household and corporate deposits in the Central and Eastern European
(CEE) region, focusing on the tightening cycle starting in the middle of 2021. This period is of particular interest for interest
rate pass-through, as the sharp hikes by central banks in response to a high inflation environment followed a period
characterised by a significant abundance of liquidity. We examine the relationship between interbank and deposit rates
using two methods: wavelet transform and error-correction models. Based on the wavelet analysis, we found a weakening
of pass-through and a slowdown in the repricing of deposit rates in the current tightening cycle among the countries of
the CEE region, particularly in the household segment. Based on the error-correction models, in the sample including
the tightening cycle, a weakening in the degree and speed of interest rate pass-through is consistently observed in the
Hungarian and Polish deposit markets; and the extent of pass-through of the benchmark rate declined most in the
Hungarian household deposit market among the CEE countries. Furthermore, a comparison of the interest rate paths
estimated on the basis of the transmission correlations for the period excluding the tightening cycle starting in 2021
and the actual interest rate time series shows that the pass-through of the benchmark rate is the least efficient in the
Hungarian household deposit market among the countries of the CEE region.


Length: 43 pages

Creation-Date: 2024

File-URL: https://www.mnb.hu/letoltes/mnb-op-151-final.pdf

File-Format: Application/pdf
Number: 2024/151
Classification-JEL: C51, C69, E32, E43, E52
Keywords: deposit interest rates, interest rate pass-through, wavelet transform, error-correction model

Handle: RePEc:mnb:opaper:2024/151