Interest Rate Pass-through in an Enlarged Europe: The Role of Banking Market Structure for Monetary Policy Transmission in Transition Countries

This study investigates the transmission of monetary policy onto retail bank interest rates inthe eight Central and Eastern European countries (CEECs) that joined the European Union in2004. Focussing on the period from 1993 to 2003, we employ a unifying empirical passthrough model that allows for thresholds, asymmetric adjustment, and structural changes over time. Our results show that the pass-through in many CEECs is faster and more complete than in the eurozone and that there may be a high potential for convergence of the pass-through across CEECs with market concentration, bank health, foreign bank participation and monetary policy regime as conditioning factors.