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How Does Interest Rate Pass-Through Change Over Time? Rolling Windows and the Role of the Credit Risk Premium in the Pricing of Czech Loans

Author

Listed:
  • Eva Hromadkova
  • Ivana Kubicova
  • Branislav Saxa

Abstract

We examine interest rate pass-through in the Czech Republic over the period of 2004-2022. We investigate the speed and completeness of the transmission of changes in reference market interest rates to lending rates on loans to non-financial companies and housing loans. The use of a rolling window approach enables us to examine changes in the pass-through over time. In the case of housing loans, the transmission of the 5-year interest rate swap rate to client rates is strong in the long term, although currently it is not complete. A 1 percentage point increase in the unemployment rate implies an approximately 0.2 percentage point increase in the risk premium for the interest rate on loans for house purchase. Our estimates for loans to non-financial companies confirm that changes in the 3M PRIBOR are passed on almost completely with minimal delay. A 1 percentage point reduction in the output gap implies an approximately 0.1 percentage point increase in the risk premium for the client interest rate on corporate loans.

Suggested Citation

  • Eva Hromadkova & Ivana Kubicova & Branislav Saxa, 2023. "How Does Interest Rate Pass-Through Change Over Time? Rolling Windows and the Role of the Credit Risk Premium in the Pricing of Czech Loans," Research and Policy Notes 2023/02, Czech National Bank.
    • Handle: RePEc:cnb:rpnrpn:2023/02
    as

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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    ARDL model; credit premium; interest rate pass-through; rolling windows;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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