The interest pass-through in the Czech Republic

2004-2014
RaduPopa i6070269
Maastricht University
School of Business and Economics
Master of Economic Studies
Supervisor: Prof. dr. Bertrand Candelon
J une 2014
Abstract
This paper examines the impact of the policy rate on deposit and loan rates in Czech Republic
between 2004 and 2014. An error correction model, will be used if cointegration is found.
Alternatively, a first difference ARDL model will be used if no cointegration is found. Bank
rates will be regressed to the policy rate and to the money market rate with which they have the
highest correlation. Lastly, a rolling regression will be utilized in order to find structural breaks
endogenously and observe the gradual impact of the crisis on the pass-though.
For the period leading up to 2009, loans to non-financial corporations have a full pass-through,
mortgages follow with a long run pass-through of 70%, and no significant impact is found for
consumer credit loans, credit cards and household overdrafts. The impact of the crisis has been
more pronounced for the household sector, making the pass-through insignificant for household
loans. However the pass-through for non-financial corporations has been less affected by the
financial crisis, but has substantially diminished since the end of 2012, as the policy rate has
reached the zero lower bound.
1
Contents
1. Introduction ..................................................................................................................................... 2
2. Literature review ............................................................................................................................. 3
2.1 Determinants of the interest rate pass-through ................................................................................ 3
2.2 Interest rate pass-through in the Czech Republic ............................................................................ 6
2.3 Impact of the financial crisis .......................................................................................................... 9
3. Methodology ................................................................................................................................. 10
4. Data description ............................................................................................................................. 11
4.a) Money market rates .................................................................................................................... 13
4.b) Government bond yields ............................................................................................................. 14
4.c) Household deposits ..................................................................................................................... 15
4.d) Non-financial corporations deposits ............................................................................................ 17
4.e) Household loans ......................................................................................................................... 19
4.f) Non-financial corporations loans ................................................................................................. 21
5. Results ........................................................................................................................................... 22
5.a) Money market rates................................................................................................................. 22
5.b) Government bonds .................................................................................................................. 23
5.c) Household deposits ................................................................................................................. 25
5.d) Non-financial corporations deposits ........................................................................................ 27
5.e) Household loans...................................................................................................................... 29
5.f) Non-financial corporations loans ............................................................................................. 31
6. Conclusion .................................................................................................................................... 32
Bibliography ......................................................................................................................................... 35
Appendix .............................................................................................................................................. 38
Appendix A Unit root test results ................................................................................................... 38
Appendix B Cointegration test results- monetary approach............................................................. 41
Appendix C Bond correlation........................................................................................................... 43
Appendix D Cointegration test results -cost of funds method............................................................ 44
Appendix E Results monetary approach ......................................................................................... 45
Appendix F Results cost of funds approach .................................................................................... 51
Appendix G Rolling regression cost of funds approach ................................................................... 55
2
1. Introduction
One of the most important tools of a central bank is the interest rate channel through which
changes in the policy rate are transmitted to bank rates of households and firms. Bernanke and
Blinder (1992) have proven that monetary tightening decreases availability of credit and
negatively impacts credit. Gertler and Gilchrist (1994) have focused specifically on small firms,
showing inventory investment is sensitive to higher policy rates. Therefore analyzing the impact
of central banks on lending and deposit rates is vital in order to be able to gauge the efficiency of
central bank policy on the real economy.
Yet the recent financial crisis has cast a large doubt on the power of central banks to steer the
economy and jump start a recovery. While much of the focus has been on Western Europe and
the Euro area, the impact that the crisis has had on monetary policy in Eastern and Central
Europe has mostly been neglected by mainstream academia. Therefore, this paper will extend
this type of analysis to the Czech Republic, focusing on the period between 2004 and 2014. The
latest study on the interest rate pass-through in the Czech Republic was published in 2009,
therefore this paper will bring novel data about the developments of the interest rate pass-through
in the aftermath of the financial crisis.
Given the I(1) nature of interest rates, cointegration will be tested using the J ohansen trace
statistic in order to see whether a long run relationship exists. If cointegration is found, an error
correction model will be employed, otherwise an ARDL model of first differences will be used.
Bank rates will be regressed to the policy rate, in accordance with the monetary policy approach
used by Sander and Kleimeier (2004), and to the money market rate with the highest correlation,
following the cost of funds approach supported by De Bondt (2005). Due to the possible
existence of a structural break in the data, results will be estimated for the period prior to August
2008 and afterwards. Finally, a rolling regression with a window of 50 months will be used, thus
presenting the gradual evolution of the pass-through since 2009 and finding additional structural
breaks endogenously.
The paper will be structured as follows: section 2 will present a literature overview of the theory
behind the determinants of the interest rate pass-through, the evolution of the interest rate pass-
through Czech Republic and an analysis of how the financial crisis has impacted the pass-
through in Western Europe. Section 3 will present the methodology. Section 4 will begin with a
description of the macroeconomic environment in Czech Republic over the past 10 years,
followed by a summary of the analyzed deposit and loan rates. Section 5 will present the results
for the monetary policy approach, including a graphical presentation of the long run coefficient
for the rolling regression. Graphs and detailed tables for the cost of funds approach are available
in the appendixes. Finally, section 6 will present the conclusions.
3
2. Literature review
2.1 Determinants of the interest rate pass-through
As banks can gain funding from money markets, consumer deposits or capital markets, yields are
expected to equalize of between the different markets as any opportunity to access funds at a
lower costs will be exploited, thus driving yields up. Therefore money market rates can be
regarded as a proxy for the cost of funding. As a result, a change in the policy rate should impact
the interest banks charge to customers as they maintain a constant mark-up over market rates.
On the other hand, consumers to place their savings in money market funds, bank deposits or
government bond yields. Thus money market rates represent an opportunity cost for savers. In a
model with perfect competition and no switching costs, the demand elasticity of deposits would
be 1 as yields across different asset markets equalize, thus entailing a complete pass-through
from monetary policy to deposit rates.
De Bondt (2005) describes the transmission mechanism from policy rate to interest rates for
consumers and firms in a two stage manner. In the first stage, the central policy rate impacts the
short term money market rates. The two-week repo acts as an opportunity costs for banks, it is
expected that money market rates will not exceed the policy rate. While variations occur on a
daily basis due to liquidity shortages in the market and reserve requirements, in the long run,
money market rates and the policy rate move together. In the second stage, long term rates in
money market are impacted, therefore a proportionate transmission of the policy rate implies a
parallel shift in the yield curve. If one of the factors affecting the yield curve changes, such as
inflationary expectations, liquidity premiums for long term maturities or market segmentation;
then the transmission of the policy rate will not be proportionate.
As opposed to the cost of funds approach, the monetary approach focuses solely on the
relationship between the policy rate and retail lending rates, thus assuming a constant yield
curve. Such an estimation method is preferable due to its simplicity and is extremely useful if
cointegration between money rates and lending/deposit rates is not found.
De Bondt (2005) uses the marginal cost pricing model br =
0 +

1
*mr wherebr is the bank rate,

0
is the constant markup,
1
is the demand elasticity of deposits or loans andmr is the market rate.
A demand elasticity of 1 would occur in a model with perfect competition, no switching costs
and information asymmetries, thus entailing a complete pass-through from monetary policy to
deposit rates. Nevertheless, such a situation does not occur in reality, therefore many deposit and
loan rates have a pass-through lower than 1
The degree of competition between banks is very important determinant in the elasticity of
deposits. If there are relatively few banks, they can collude and will not feel pressure to adjust
rates rapidly. On the other hand, if there are a large number of banks, once one bank will adjust
their rates, others will have to follow suit for fear losing customers to the competition. Van
Leuvensteijn, Kok Sorensen et al. (2008) analyze the impact of competition on the interest rate
4
pass-through for 8 Euro area countries for the period 1994-2006
1
. They measure competition
with the Boone indicator, which measures the elasticity of profits to marginal costs
2
. Their
findings show that higher competition leads to lower spreads between money market rates and
lending rates. Furthermore, the impact of competition lowers deposit rates, as banks compensate
lost revenue from lending by cutting interest rates paid on deposits. Overall, a higher degree of
competition is associated with a larger and more rapid pass-through for both lending and deposit
rates.
When cost of funding goes up, banks have the incentive to pass on the additional costs to
customers. On the other hand, when costs fall, banks will postpone decreasing lending rates as
they can benefit from a higher margin. Mojon (2000) looks at interest rates for the six largest
economies of the Eurozone between 1979-1998. He shows that the pass-through is higher when
money market rates increase, while rates adjust slower when money market rates are decreasing.
This downward rigidity leads to an asymmetric speed of adjustment for lending rates.
Furthermore, the impact of regulation, as measured by Gual, (1999), is shown to be significant
only when money market rates are decreasing, therefore reducing this downward rigidity. The
opposite effect is observed for deposits ie deregulation increases the pass-through when money
market rates are increasing. Therefore, a higher degree of competition is expected to minimize
the asymetry of the pass-through for both lending and deposit rates.
If companies rely heavily on financial markets, ie bonds issuance, in order to raise funds, they
will be less impacted by developments in the money market. Furthermore, the development of
money market funds and mutual funds has increased competition for traditional deposits and
improved alternatives for savers. The process of financial disintermediation implies a lower
dependency on banks for funding and a higher reliance on capital markets. Access to direct
finance outside of the bank sector is expected to increase the pass-through as it puts more
pressure on banks to offer competitive rates to clients. Singh, Razi et al., (2008)analyze the
interest rate pass-through in developed and developing Asian countries, controlling for financial
market developments across countries. They have found a positive correlation between the size
of equity and bond markets and the size and speed of the interest rate pass-through. Furthermore,
more developed financial markets also improve the pass-through to short term and long term
government bond yields.
Ozdemir and Altinoz (2012) use the z-score as one of the determinants for the size for interest
pass-through in 25 emerging country economies between 2004 and 2008. The z-score is defined
as the sum of the mean return on assets and ratio of equity to assets by the standard deviation of
return on assets for banks in the respective country. Therefore, a higher z score reflects a higher
buffer against future losses and a healthier banking sector. The authors find a positive
relationship, thus a 1 point increases in the z-score improves the pass-through by 15%.
1
The countries analyzed are: Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal and Spain
2
The market share of more efficient banks is expected to increase as competition increases. A larger negative value
indicates a higher market share of companies with lower marginal costs, and thus a higher degree of competition
5
The bank finance structure also impacts the extent to which it transfers changes in policy to
consumers. A bank which would be highly reliant on external funds from money market will
immediately feel the pressure from a change in the policy rate. On the other hand, a bank which
has a substantial amount of long term deposits will not have such a pressure to reprice its loans
as its deposits will adjust their interest rates less frequently. Gambacorta (2005) looks at the
impact of monetary policy on Italian banks between 1986-2001, showing that more liquid banks
are less responsive to a monetary policy shock. Furthermore, banks with higher levels of capital
will be less affected by monetary policy as they can access alternative sources of funding such as
capital markets. J imborean (2009) analyzes data from individual commercial banks from 10
Central European countries between 1998-2006
3
. By separating banks depending on their loan to
deposit ratio, the author finds that lending growth for banks with a high deposit to loan ratio is
not impacted by a monetary policy shock. Weth (2002) looks at the maturity mismatch between
loans and deposits, showing that banks which have a larger proportion of short term deposits to
fund long term loans, will have a higher pass-through.
While large firms have access to capital markets to obtain funding, SMEs and households are
highly reliant on bank financing, therefore lending rate need to not fully adjust. Therefore, the
pass-through for corporate loans is expected to be closer to 1 due to competition from financial
markets and higher credit-worthiness of large firms. For example, Sander and Kleimeier (2004)
show that the interest rate pass-through in 8 Central European countries between 1993 and 2003
is 91% for short term corporate loans, 107% for long term corporate loans, but only 59% for
consumer loans. Furthermore, Van Leuvensteijn, Kok Sorensen et al. (2008) show that an
increase in the Boone indicator, a measure of competition, has a the highest impact on short-term
corporate loans, while mortgage loans, followed by consumer credit, present a lower
responsiveness to changes in competitiveness.
Furthermore, switching costs, both administrative and informational, also act as a deterrent for
customers for customers to move to another bank in order benefit from a higher deposit rate.
Kim, Kliger et al. (2003) show that contractual penalties for loans impose high costs for ending
the relationship prematurely, thus locking in customers for years. Therefore lower switching
costs increase the elasticity of demand, making it more likely for rates to adjust faster.
Due to asymmetric information, banks are not able to exactly determine the probability of default
for firms. Banks will charge higher risk premiums when increasing rates in order to cover the
adverse selection (attracting lower quality borrowers) and moral hazard (borrowers use loans for
ventures with higher returns, and thus higher risks, in order to be able to pay back higher
interest).Stiglitz and Weiss (1981) showed that banks will not raise rates proportionally and will
ration credit only to eligible client, if they believe that profits of higher interest rate income will
be outweighed by defaults .On the other hand, a pass-through higher than one implies that banks
are willing to lend to riskier ventures and are not involved in credit rationing.
3
Countries analyzed are Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak
Republic and Slovenia.
6
Sander and Kleimeier (2004) analyze the impact of money market volatility and inflation rates
on the pass-through. Money market volatility has a negative impact as it makes it hard for banks
to differentiate white noise from long run trends in the money market rates. Therefore banks will
choose to implement larger adjustments at longer intervals. On the other hand, higher inflation
has a positive impact on the pass-through as shown by Mojon (2000). During periods of high
inflation, with a 1% higher inflation decreases the pass-through by 6% as price adjustments for
firms occur more frequently, therefore banks can pass on higher costs with greater ease. Last but
not least, higher economic growth is expected to improve the pass-through as shown by Sander
and Kleimeier (2004). According to their estimates, 1% higher GDP growth improves the pass-
through by 17%.
2.2 Interest rate pass-through in the Czech Republic
Sander and Kleimeier (2004) account for differences between effectiveness of monetary policy
by focusing on the financial structure(bank concentration, foreign bank ownership), financial
development (credit to GDP, non-performing loans, stock market capitalization) and
macroeconomic developments such as volatility of money market rates and inflation. While
GDP growth and financial development are not significant, inflation has a positive sign,
therefore a higher rate of inflation is expected to increase the size and speed of the pass-through.
On the other hand, money market volatility as measured by standard deviation of 1-month
money market rate has a negative coefficient. They find an average pass-through for loans
increasing from 78% for period 1993-1997 to 95% for the period 1999-2003. The pass-through
for deposits is lower, starting at 44% for the period 1993-1997 and increasing to 66% between
1999-2003. Out of the sample of countries, Czech Republic dummy is not statistically
significant, therefore results are in line with other countries analyzed.
gert, Crespo-Cuaresma et al. (2007) use the monetary and cost of funds approach to analyze the
pass-through in 5 Central European countries between 1995 and 2005. The monetary approach is
estimated by using a bivariate error correction model linking the market rate to the policy rate is
estimate using both Dynamic Ordinary Least Squares and Autoregressive Distributed Lag model.
Overall stock of deposits in Czech Republic has a coefficient of 80% for maturity less 1 year
and70% for maturity higher 1year. Lending rates for the total stock of loans with maturities up to
1year have a pass-through of 66%, while total household loans have a statistically insignificant
pass-through. Looking at the period between 2001 and 2005, the pass-through for non-financial
corporations loans is 87% for loans with maturity up to 1 year and 98% for loans with a maturity
between 1 and 5 years. A cointegration relationship is found only for Czech Republic between
2001 and 2005, supporting the cost of funds approach two stage approach. The coefficients
yielded through this estimation method are consistent with the monetary policy approach: 73%
for deposits up to than 1 year and90% for non-financial corporate loans with maturities between
1 and 5 years.
Tieman (2004) also look at the period 1995-2004, focusing on Czech Republic, Hungary,
Poland, the Slovak Republic, and Slovenia. The author employs a bivariate Error Correction
model, following the monetary policy approach. Adding to gert, Crespo-Cuaresma et al.
7
(2007), data is also available for new loans for the period 2001-2004. Stock of short term
deposits have a pass-through of 79%, while long term deposits have a lower long term pass-
through of 49%. Regarding loans, short term maturities exhibit a higher responsiveness to
changes in the policy rate as the pass-through is 104% for newly issued short term loans, while
for long term loans the coefficient declines to 83%.
The following table from Coricelli, gert et al. (2006) provides a useful overview of the pass-
through in Central and Eastern European countries, as measured by studies 1998 and 2004.
Long-Run Interest Rate Pass-Through Estimates for the CEECs
Type of rate Average long-run pass-through
Short-term deposit rate 0.72
Long-term deposit rate 0.69
Short-term lending rate 1.01
Long-term lending rate 0.91
Consumer lending rate 0.51
Housing/mortgage lending rate 0.73
Horvth and Podpiera (2012) look at the pass-through in Czech Republic between J anuary 2004
and December 2008, applying panel cointegration technique to a panel of bank data. They allow
for heterogeneity in both the speed of adjustment and the size of the pass-through. The results
were obtained by analyzing bank data and presenting median values of the pass-through out of
the sample. They used a single equation bivariate error correction model, regressing bank rates
on the money market rate with the highest correlation. Compared to previous studies, short term
deposits show an improvement, coming closer to a full pass-through with a full coefficient of
93%. On the other hand, long term deposits are below the CEEC average with a pass-through of
47%. Regarding mortgage loans, the pass-through is significant with a coefficient of 62%, but
slightly lower compared to CEEC average. Lastly, loans for non-financial corporations bellow 30
mio CZK exhibit a full pass-through for all maturities, while loans above 30 mio CZK have a
coefficient of around 80%. This is counterintuitive as we would expect larger loans to have a
larger pass-through due to higher credit-worthiness of borrowers and larger elasticity of demand
given existence of other financing alternatives.
8
Households
Short-term pass-
through
Long-term pass-
through
Speed of
adjustment
Deposits
With agreed maturity of up
to two years
0.70*** 0.93*** - 0.61***
(0.09) (0.02) (0.09)
With agreed maturity of over
two years
0.68 0.47*** - 0.28*
(0.63) (0.06) (0.14)
Loans
Lending for house purchase - 0.13 0.62
***
- 0.34
***
(0.23) (0.03) (0.11)
Non-financial corporations - Loans up to CZK 30 mil
Floating rate and initial rate
fixation of up to one year
0.70
**
0.94
***
- 0.50
***
-(0.15) (0.06) (0.11)
Initial rate fixation of over
one year
0.52 0.95
***
- 0.49
***
(0.44) (0.09) (0.20)
Non-financial corporations - Loans over CZK 30 mil
Floating rate and initial rate
fixation of up to one year
0.90
***
0.81
***
- 0.53
***
(0.30) (0.03) (0.10)
Initial rate fixation of over
one year
0.9 0.78
***
- 0.77
***
(2.20) (0.08) (0.27)
Furthermore, their dataset allows them to study what the determinants are for differences in the
pass-through within banks. While banks react heterogeneously in the short run, in the long run
their coefficients are homogenous. They find that banks which rely heavily on deposit funding as
opposed to non-deposit funding will tend to have a lower pass-through as they will smoothen the
transition to their customers and rely more on relationship lending. Credit risk, as measured by
non-performing loans, has a positive effect on the interest rate pass-through. Therefore banks
which experience higher credit risk will not have the adequate resources to smoothen the
transmission of a policy shock to their customers. Other indicators such as bank size, capital
adequacy and liquidity do not affect the interest rate pass-through.
Babeck-Kucharukov, Franta et al. (2013) extend the analysis to 2009, find that the pass-
through short term deposits has remained constant, while that for long term deposits has
9
increased to 73%. Mortgages have also increased, having a long term coefficient of 92% as
opposed to 62% before. Regarding non-financial corporations, the crisis has had a negative effect
for loans with an interest rate fixation period below 1 year and a positive effect for loans with a
higher interest rate fixation period. This effect has been more pronounced for smaller loans
(around 20% in both directions), while for larger loans it has only been around 1-2 percentage
points.
The main conclusions from surveying the data are: corporate loans have higher pass-through
than consumer loans, as expected given that corporations have access to other sources of funding
such as capital markets. Long term deposits have a higher pass-through than short term deposits,
while current account and saving accounts show a very low pass-through. Lastly, a large degree
of heterogeneity is observable within countries, with Czech Republic having a slightly lower
pass-through than other countries in the region.
2.3 Impact of the financial crisis
Beckmann, Kleimeier et al. (2013) look at the impact of banking crises on the interest
rate pass-through. They use a database set up by Laeven and Valencia (2013)which covers
banking crisis from the 1980s onwards. Given that the current financial crisis is still developing,
the results do not allow for estimation post crisis. Nevertheless, they find that the long run pass-
through in France, Germany, Ireland and UK has not been affected by the crisis. On the other
hand, for Italy, Portugal and Spain the financial crisis has decreased long run pass-through by 30
to 70 percentage points. Regarding deposit rates, the impact has been even larger as the pass-
through has declined from a full pass-through to insignificant for Spain and Portugal. UK and
Germany have also been impacted, falling by around 20 percentage points for Germany and 60
for UK.
ECB (2013) analyzes the impact of financial fragmentation on the pass-through after the
crisis. Due to sovereign debt crisis and the slowdown of economic activity, the decreases in the
policy rate could have not been passed down to firms as banks require higher premium over the
policy rate in order to be compensated for the higher risk of default. Furthermore, since the
beginning of the crisis, the spread between lending rates has increased, especially for smaller
loans designated for SMEs, showing the flight to quality of banks. This situation was especially
pronounced in Spain and Italy, both countries severely affected by recession and sovereign debt
crisis. In addition to this, changes from the policy rate were transmitted quite uniformly for the
policy rate cuts between October 2008 and May 2009, but much more heterogeneously and
incomplete for those between November 2011 and J uly 2012. For example, short term lending
rates to household increased in Spain and Ireland over the period even though the policy rate fell.
Overall, they find that the increase in sovereign bond yields spread to German bonds as well as
other macroeconomic factors such as high unemployment, increased probability of default for
non-financial companies are responsible for the discrepancies within countries.
Al-Eyd and Berkmen, (2013) extend the traditional ECM model by including variables
which capture changes in macroeconomic environment which might affect the pass-through and
explain the recent divergence between core and periphery countries. When controlling for factors
10
such as CDS spreads for financial companies, spread of bank bonds to the policy rate and asset to
capital, the pass-through is unchanged compared to pre-crisis period. Therefore the heterogeneity
between core and periphery countries and elevated lending rates can be explained by
developments related to macroeconomic environment rather than traditional determinants of the
interest rate pass-through such as competition or bank finance structure.
3.Methodology
According to the monetary approach, the long run relationship between the policy rate and bank
rates isBR
t
=0
0
+0P
1
+u
t
. As stationarity is an issue with interest rate time series, unit root
tests augmented Dickey Fuller (ADF), Phillips Perron (PP) and Kwiatkowski-Phillips-
Schmidt-Shin (KPSS) will be performed. Cointegration between two variables means that
despite fluctuations in the short run, these values will not deviate from equilibrium for an
extended period of time. Cointegration will be tested using the Johansen trace statistic and the
optimal lag length will be determined by the Akaike Information Criterion with maximum
number of lags set to 4.
If cointegration is found, then an error correction model used to estimate the pass-through as
shown below
BR
t
=o + [
BR,
BR
t-
k
=1
+ [
P,
P
t-
n
=1
+0ECI
t-1
+e
t
where BR is the retail bank rate for deposits or loans, P is the monetary policy rate and the error
term is ECI
t-1
=P
t-1
[
BR,t-1
BR
t-1
. The short run impact of a policy rate shock is[
BR,1
,
the long run impact is
[
P,t-i
n
i=1
1- [
BR,t-i
k
i=1
and the speed of adjustment is0.The advantage of the ECM
is that it gives the possibility to differentiate between short run and long run dynamics, thus
giving a complete picture of the interest rate pass-through.
If no cointegration relationship is found, then an ARDL model will be estimated as shown below
BR
t
=o +[
BR,0
BR
t
[
BR,
BR
t-
k
=1
+ [
P,
P
t-
n
=1
In this case, the short run impact of a policy rate shock is [
BR,1
, the long run impact is
[
P
n
i=1
1- [
BR,t-i
k
i=0
and the speed of adjustment is[
BR,0
as defined by Sander and Kleimeier (2004). A
speed of adjustment lower than 1 shows that the impact of a change in the policy rate is
transmitted to market rates within one month.
Given the possible existence of a structural break since the onset of the crisis, the J ohansen trace
statistic may wrongly indicate lack of cointegration due to the misspecification of the model
Therefore, cointegration tests will also be performed for period before August 2008 and
afterwards and the ECM will be estimated separately for pre-break and post break period. The
date was chosen as it was the first month when the Czech National Bank started cutting its policy
11
rate in response to the financial crisis in Europe, therefore it provides the first signal of the
change in the macroeconomic environment.
Lastly, a rolling regression with a period of 50 months will be conducted in order to gauge how
the long run coefficients have changed since 2008. A period of 50 months was chosen in order to
give a clear estimate of the pass-through before the crisis and show the gradual impacts of the
economic crisis. If cointegration is found in at least two of periods analyzed (full period, before
or after crisis), then an error correction model will be employed. Otherwise, an ARDL model
will be used. The results will be presented by graphing the long run impact along with its 95%
confidence interval.
Additionally, the cost of funds method will be used to measure the pass-through. Given the short
maturity of the policy rate, it may not be a useful indicator to measure to opportunity costs for
banks in the case of loans with longer maturities. Therefore the cost of funds approach defines
the pass-through from the policy rate to bank rates as a two stage process: initially from the
policy rate impacts market rates, and afterwards, from market rates to bank rates. For example,
De Bondt, Mojon et al. (2005) find that bank will set rates for long term loans such as mortgages
in accordance to long term liabilities such as government bonds. Therefore the market rates
analyzed will be interbank money rate rates with maturities of 1 day, 1 month, 3 months and 1
year and government bonds with maturities of 2 years, 5 years and 10 years. The market rate
with the highest correlation will be chosen and the same methodology as the monetary approach
will be used to measure the pass-through from market rates to the bank rate.
4. Data description
The period between 2004 and 2006 is characterized by high GDP growth fuelled by
increasing household and business debt. Growth in the EU helped boost Czech exports as well as
foreign direct investment. Furthermore, low oil prices helped inflation fluctuate around 2% level.
Therefore the policy rate remained around the 2% level, supporting economic growth. During
2007 as international tensions started to mount due to the developing financial crisis in the
United States, the Czech Republic was not affected as GDP continued to grow at an accelerated
pace, along with exports and household debt. However, increasing oil prices along with a VAT
tax hike put pressure on the inflation rate, thus forcing the Czech National Bank to increase the
policy rate by an entire percentage point during 2007 from 2,5% to 3,5%(CNB 2008). Another
increase followed in February 2008, yet as inflationary pressures fell and the economic
slowdown of developed countries in EU started to affect Czech economy, the Czech National
Bank decided to decrease the policy rate in August 2008to 3,5%. By the end of the year, the
policy rate fell further to 2,25%. The performance of the economy was disappointing in 2009
registering the first year of negative economic growth with a record high government deficit and
a drastic fall in exports, even though the Central Bank further eased monetary policy, lowering
the policy rate to 1%(CNB 2009).
12
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP growth 4,7 6,8 7,0 5,7 3,1 -4,5 2,5 1,8 -1,0 -0,9
Loan growth households 33,0 32,6 29,5 34,4 21,2 11,7 7,5 5,8 4,0 3,7
Loan growth non-
financial corporations
8,0 15,6 19,6 19,5 12,3 -8,2 0,0 5,3 2,5 -1,6
Non-performing loans 6,3 5,0 4,2 3,4 3,1 4,8 6,7 7,0 6,5 6,6
Export growth 16,0 16,5 17,5 13,6 10,5 -15,7 19,1 13,5 5,3 -1,5
Government deficit -2,8 -3,2 -2,4 -0,7 -2,2 -5,8 -4,7 -3,2 -4,2 -1,5
Unemployment 8,3 7,9 7,1 5,3 4,4 6,7 7,3 6,7 7,0 6,9
Inflation 2,6 1,6 2,1 3,0 6,3 0,6 1,3 2,1 3,5 1,4
Policy rate 2,3 1,9 2,2 2,9 3,5 1,5 0,8 0,8 0,5 0,1
All figures are percentages
Property prices started falling as well, as growth in mortgages subsided and supply of new
residences outstripped demand. Nevertheless, the high profitability of the banking sector,
comfortable deposit to credit ratio and low proportion of foreign currency loans were important
factors in important factors in maintaining the viability of the banking sector. Furthermore, the
capital to asset ratio of banks remained constant around 11% during the crisis, showing the
soundness of Czech banks.
During 2010, the economy started rebounding slowly, yet high energy prices and low demand for
exports were drags on growth. The fall in economic activity significantly impacted corporations
whose default rates increased, leadings to cuts in production and increases in unemployment.
Following a contraction of 8% in 2009, loans to non-financial corporations were stable, while
loans for households increased at 7,5%, showing a slow-down from previous year level of 12%
(CNB 2011).
After decreasing the policy rate to 0,75% in May 2010, the CNB kept the rate stable until J une
2012 in an effort to boost the economic recovery. Nevertheless, the recovery lost steam during
2011, as net export and changes in inventory were the only drivers of growth. Due to low
domestic demand, firms which focus on internal market such as construction, real estate and
services posted disappointing results. Furthermore, low wage growth and high unemployment
were a drag on consumption and led to only a moderate increase in lending to households. On the
other hand, non-performing loans stabilized around 7% and the banking sector maintained a solid
capitalization ratio, showing signs that the worst had passed for the financial sector(CNB 2012).
13
Slow growth in EU started to impact exporting companies, which had been shielded from the
impact of the crisis, thus the Czech Republic fell into a recession again at the beginning of
2012.The economy continued to experience negative economic growth until the third quarter of
2013, mainly due to fiscal consolidation efforts and falling investment of firms. As a result, the
policy rate was decreased thrice in 2012 to 0,05%. Furthermore, the CNB announced it will
intervene in foreign exchange markets in order to keep the koruna close to CZK 27/EUR level in
order to prevent appreciation and support exports. Fortunately, external demand and household
consumption picked upin first quarter of 2014, pushing GDP growth to 2,5% (CNB 2013).
4.a) Money market rates
First of all, the pass-through from the policy rate to money market rates will be analyzed.
Interbank rates are obtained as monthly averages from the website of the Czech National Bank,
focusing on the main maturities: overnight, 1 month, 3 months and 1 year. Czech money market
rates follow closely the policy rate for maturities below 1 year before the financial crisis. Given
that around 80% of the market is traded on short maturities overnight or 1 week, these rates are
most significant. Furthermore, due to the low liquidity of longer maturities, these interest rates
are much more sensitive to shifts in the market and are characterized by higher volatility. All
rates spike in October - November 2008 after the fall Lehman Brothers, showing the large
amount of market unrest at the period. Accordingly, the Czech National Bank expanded its repo
maturity to 3 months and implemented a full allotment policy (CNB 2008). As can be seen from
the graph below, there was a spike in volumes for repo operations, helping money market rates
fall back to normal levels.Gersl and Lesanovska (2013) analyze the increase in the spread of
PRIBOR 3M from policy rate during the financial crisis and find that high counterparty non-
performing loan, as well as low bond market liquidity and volatility in EURIBOR money market
are the main determinants for the higher spread. Following November 2008, overnight rate
followed closely the policy rate, while the spread between maturities above 1 week narrowed
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Quarterly GDP growth
Euro area (12 countries) Czech Republic Germany
14
0
2
4
6
8
10
12
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10 year bond yields
Czech Republic Germany Hungary Poland
significantly until February 2009. Nevertheless, given the extremely low volumes at higher
maturities (around 1% for maturities above 1month for 2008 and 5% for 2009 and 2010), these
developments are not particularly significant for the market(CNB 2012). Money market rates
continued to decrease with the policy rate, stabilizing in May 2010 as the Central Bank set the
policy rate at 0,75% and falling again in 2012 after the last round of policy rate cuts. They have
since remained at levels between 0.15% for overnight to 0.55% for 1 year maturity.
4.b) Government bond yields
Additionally, the pass-through from the policy rate to government bond yields will be measured
in order to see how debt instruments with longer maturities are impacted. Government bond
yield data is obtained from Czech National Bank and Bratislava Stock Exchange and is based on
a basket of government bonds with an average residual maturity for 2 years, 5 years and 10 year.
The average maturity of Czech government bonds has varied around 6,5 years since 2006, with
around half of outstanding debt above 5 years. Government bond yields moved with the policy
rate between 2004 and 2008, with the spread between 2 and 5 year maturities tightening as
policy rate increased. Bond yields spiked in J une 2008 and again in March 2009 for 2 and 5
years maturities and in J une 2009 for 10 years maturity.
0
10.000
20.000
30.000
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Money market rates
Liquidity providing repo (rhs) 1 day (%)
1 month (%) 3 months (%)
1 year (%) Policy rate
15
0%
5%
10%
15%
20%
0
1
2
3
4
5
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Government bond yields
Bank holdings of government debt (rhs) 2 years maturity
5 years maturity 10 years maturity
Policy rate
Claeys and Vaek (2012) show that 50% of variance of Czech bond yields over German bonds
can be explained by external developments ofbond markets, with Hungary and Poland having
the largest impact. As 30% of government debt is held by investors, external perceptions on the
credit worthiness of Czech Republic as well as risk aversion in the markets may move yields
beyond their fundamentals during periods of unrest. This can also have a positive impact on
yields. For example, a dip in yields can be observed for all maturities at the end of 2001 as the
European Central Bank introduced Long Term Refinancing Operations. Overall, Czech bonds
are now seen by international investor as a safe asset offering an attractive yield, given the low
debt to GDP ratio of the Czech Republic (46% in 2014). This was also reflected by the Standard
and Poor decision to upgrade Czech government debt by two notches from A to AA- (Reuters
2011)
Furthermore, due to the high deposit to credit ratio of commercial banks and slow growth of
lending, Czech banks have increased their government bond yields holdings since the onset of
the crisis, driving down yields. Regulatory measures have also supported domestic banks holding
domestic bonds as they do not have to keep additional capital and can be used as collateral for
CNB repo operation, therefore they can be used as a liquidity buffer in times of unrest. (CNB
2012). Overall, Czech bond yields have been responsive to the decrease in the policy rate, falling
along with its changes and maintaining a constant spread of around 1% between maturities.
4.c) Household deposits
I will also analyze the price behavior of interest for deposits, both for households and non-
financial corporations. At April 2014, the majority of funds were held in overnight and current
accounts, reflecting a need for liquidity and a low incentive to save. Households split their
remainder of their funds between agreed maturity deposits and redeemable at notice accounts.
Nevertheless, the situation was quite different in 2004, when funds for households were split
evenly between overnight and agreed maturity deposits. While agreed maturity and redeemable
notice deposits remained stable, all growth in households funds went to overnight deposits.
16
0
200.000
400.000
600.000
800.000
1.000.000
1.200.000
1.400.000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Household outstanding amounts
Overnight With agreed maturity total Redeemable at notice total
Furthermore, at the end of 2008 as market tensions began to rise, households shifted from agreed
maturity deposits to redeemable at notice due to higher uncertainty regarding the future and need
for easy access to liquidity.
In order to facilitate an easy understanding of the data, deposits for agreed maturity will be split
between interest rate fixation period shorter than 1 year and longer than 1 year. The interest rate
above 1 year will be constructed by using the weighted average of new amounts with maturities
above 1 year. Until 2009 interest rates above 1 year show very high volatility, while broadly
following the movement of the policy rate with a large delay until mid 2010. On the other hand,
deposits below 1 year followed closely movements of policy rate, maintaining a constant spread
of around 0,75% between 2004-2009. As the policy rate started decreasing, the spread became
close to zero as rates fell in sync. Since May 2010 when the policy rate stabilized at 0,75%, both
rates in household deposits have been driven mainly by competition from small banks and
building societies which offer higher rates than large and medium banks (on average 1,5%
higher, CNB 2011-2012), therefore interest rates of new amounts have shown a large degree of
volatility and a high spread above the policy rate.
17
Regarding deposits redeemable at notice, their rates show very low responsiveness to the
policy rate, therefore a very low pass-through is expected. The rates over 3 months have
fluctuated around 1%, while rates for maturities up to 3 months show a similar pattern around the
2% level.
4.d) Non-financial corporations deposits
For non-financial corporations, a detailed breakdown is not available between maturities,
therefore only the three main categories will be considered: overnight, agreed maturity deposits
and redeemable at notice deposits. Regarding outstanding amounts, deposits redeemable at
notice have a very small share for the entire period, while overnight and agreed maturity deposits
amounts are almost equal at the beginning of 2004. While agreed maturity deposits remained
relatively stable until the end of 2008, overnight deposits increased by around 40 bio CZK (1.8
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Agreed maturity -Households
Up to 1 year maturity Over 1 year maturity Policy rate
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Redeemable at notice & Overnight -Households
Policy rate Up to 3 months - HH Over 3 months - HH Overnight
18
bio EUR). Due to market tensions and decreasing interest rates, outstanding amounts for agreed
maturity deposits started falling at the end of 2008, leading to an increase of 60% for overnight
accounts increased between 2009 and 2014.
Regarding interest rates, overnight deposits are least responsive, fluctuating around 0,5%
until beginning of 2006. Afterwards rates started rising to a maximum of 1,2% in J une 2008,
falling again to an equilibrium level of 0,5% in March 2009. Deposits redeemable at notice
follow changes in the policy rate with a delay of around 3 months. The interest rate on
redeemable deposits switched from having a spread of around 1% below the policy rate to
having a positive spread which increased up to 1,9% in the beginning of 2013, four months after
the Central Bank lowered to its historical low of 0,05%. The spread has since fallen and seems
to have stabilized at around 1%, which is comparable to interest rates offered in the household
sector for redeemable deposits above 3months. Interest rates for deposits with an agreed maturity
show a much smaller spread to the policy compared to household agreed maturity deposits,
therefore showing a higher degree of competition for funds in the corporate sector and a higher
elasticity of demand given the larger number of alternatives available to corporates. Once the
Czech National Bank started implementing a looser monetary policy in August 2008, the spread
between agreed maturity interest rate and policy rate became even smaller, close to 0%, until
finally in June 2012 when the policy rate was lowered to 0,5% the spread became positive as
rates on agreed maturity deposits could not be lower than those offered for overnight deposits.
0
100.000
200.000
300.000
400.000
500.000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Outstanding amounts -Non financial corporations
Overnight Agreed maturity Redeemable at notice
19
4.e) Household loans
Household loans are divided into three main categories: loans for house purchase, consumer
credit and other loans. Mortgages represent the largest share of outstanding loans given their
good quality of collateral and high ticket per loan. Given the low debt level of Czech households
at the beginning of the 2000s, (30% of GDP in 2004), there was a lot of potential for expanding
private lending. Therefore in the period preceding the crisis, mortgages increased by 35%
annually, while consumer credit and other loans grew at around 25%. As the financial crisis hit
Czech Republic, growth loans to households started slowing down, with mortgages stabilizing at
around 6% growth in early 2011, while consumer credit stopped growing in September 2009.
Overall, loan growth has been supported almost exclusively by mortgages over the past four
years, showing that banks are less willing to lend out money to households for loans with no
purpose attached or without collateral, as the increase in unemployment and stagnation in wages
have affected the credit-worthiness of households.
Share of household loans
Consumer credit
Lending for
house purchase
Other
31.1.2004 22% 67% 11%
30.4.2014 16% 73% 11%
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-financial corporations -deposits
Overnight Agreed maturity Redeemable at notice
Policy rate Agreed maturity households
20
Keeping in line with methodology used for deposit rates, loans will be separated depending on
their interest rate fixation period: below 1 year and above 1 year. The interest rates for interest
rate fixation period above 1 year will be constructed using weighted average of interest based on
new amounts.
Mortgages with higher interest rate fixation periods adjust slower to changes in the policy rate
and only partially. If the policy rate is decreasing, floating mortgages are preferable as they are
more susceptible to changes in the policy rate. Given the fact that rates have stayed low for such
a long period, longer maturities (1-5 years) have also been impacted, therefore it is profitable for
households to lock in these low rates for an extended period of time.
On the other hand, consumer credit and credit cards show very low responsiveness to changes in
the policy rate, given their high risk premium and poor collateralization. Credit card interest rates
-5%
5%
15%
25%
35%
45%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Growth rate -Household loans
Total loans Consumer credit Lending for house purchase Other
0
10.000
20.000
30.000
0
2
4
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mortages -Households
Over 1 year rate IRF - new amounts Floating rate and up to 1 year IRF - new amounts
Over 1 year IRF Floating and up to 1 year IRF
Policy rate
21
fluctuate around 20%, with the exception of 2009 when rates peak at 24%, afterwards returning
to the previous level. Consumer credit with an IRF above 1 year falls from 2004 to August 2006
to a low of 12%, afterwards fluctuating with no clear trend up to 15%. Overdrafts have a very
similar evolution to fixed rate credit card interest rates, showing no distinct trend over the
analyzed period. Floating interest rates for consumer credit show the highest volatility out of the
three series, having a delayed response to changes in the policy rate of around 14 months.
Nevertheless, they have decreased by 5% from their peak, showing some responsiveness to the
fall in the policy rate since 2008.
Between 2004 and 2006, the majority of new loans (80%) were floating rates as these had the
lowest rates. In the period following, until 2006, loans were split with around a third of new
amounts having floating rates, while the remainder had interest rate fixation periods above 1
year. Even though floating rates have been lower than fixed rates since 2012, most of the growth
in new loans has occurred in loans with fixed interest rates
4.f) Non-financial corporations loans
For loans above 30 mio CZK, no division is available based on interest rate fixation period,
therefore only total amounts will be analyzed. For loans below 30 mio CZK, , loans will be
divided depending on their interest rate fixation periods. Out of the interest rate analyzed so far,
loans for non-financial corporations have the highest responsiveness to changes in the policy
rate. Nevertheless, since August 2008 the spread against the policy rate has increased as the
default rate of companies started increasing, therefore banks became more risk adverse and
charged a higher risk premium. Loans over 30 mio CZK have a lower interest rate than loans up
to 30 mio CZK as larger firms have a lower probability of default and they have access to
alternative sources of finances, therefore they exhibit a higher elasticity of demand.
0
1
2
3
4
5
10
15
20
25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Consumer credit, overdrafts and credit cards
Consumer credit - Floating rate and up to 1 year IRF Consumer credit - Over 1 year IRF
Overdrafts - HH Credit cards
Policy rate (rhs)
22
5. Results
As expected, interest rates are I(1), therefore looking at a cointegration relationship is
feasible as all rates have the same degree of integration.
5.a) Money market rates
Looking at the entire period, the long run pass-through is not significant, while it becomes
complete for sub-periods between 2008-2012. During 2004 the Czech National increased the
policy rate twice and decreased twice during 2005, therefore rolling estimates up to 2009show an
insignificant pass-through. Nevertheless, the pass-through steadily improved, becoming
complete by the end of 2011 and decreasing afterwards to 70% as policy rate approached the
zero lower bound.
The 1 month money market rate shows a lower degree of volatility, dipping from 90% before the
crisis to 60% at the end of 2008. Afterwards it stabilizes around 100% and, following a peak at
the beginning of 2013, it falls to 75%.
0
25.000
50.000
75.000
0
2
4
6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-financial corporations loans
Loans over 30 mio CZK - new amounts (rhs) Loans up to 30 mio CZK - new amounts (rhs)
Over 30 mio CZK - total Loans up to 30 mio CZK -Floating rate and up to 1 year IRF
Loans up to 30 mio CZK - Over 1 year IRF Policy rate
23
The 3 month and the 1 year money market rates show very similar evolution to the 1 month pass-
through. They exhibit a drop in the pass-through to 60% during the unrest of 2008 and after J une
2012 as policy rate is approaching zero lower bound, but for the rest of the analyzed period the
pass-through is complete for 3 month rates and at 80% for 1 year rates. These results are in line
with gert, Crespo-Cuaresma et al. (2007)who find a complete pass-through from policy rate to
short term money market rates (1month) and long term (12 months) for the Czech Republic
between 1995 and 2005.
To conclude, money market rates have been weakened by the financial crisis between 20% and
40%, thus overnight and 1 month maturities now have a comparable pass-through around 70-
75%, while 3 month and 1 year maturities have stabilized around 60%.
5.b) Government bonds
Government bond yields with a 2 year maturity have a pass-through of 90% at the beginning of
the analysis, but this falls to 60% as the policy rate decreases between 2009-2013. Government
-1,5
-1
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overnight -ECM
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
1 month -ARDL
0
0,2
0,4
0,6
0,8
1
1,2
1,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
1 year -ARDL
0
0,2
0,4
0,6
0,8
1
1,2
1,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
3 months -ARDL
24
bond yields with a 5 year maturity have a pass-through of 50% at the beginning of the period,
climbing up to 70% at the end of 2008, but becoming insignificant afterwards.
The regression is significant only for the period before the crisis, with a coefficient of 65%. This
can also be observed from the graph of the long run coefficient which becomes insignificant
from the end of 2008.
Singh, Razi et al. (2008) show that the pass-through to 3 month T-bill rates in developed
countries
4
is close to 1 in the long run, while long term bonds with maturities between 3 and 5
years have a long run pass-through between 65% (Germany) and 81% (US). Therefore results for
Czech Republic before the crisis are in line with pass-through in developed countries.
Government bonds with higher maturities are less responsive to changes in the policy rate and
have been affected to larger extent by the financial crisis. Furthermore, as the policy rate
approached the zero lower bound, the pass-through becomes insignificant for all maturities as
4
The countries analyzed are :UK, Australia, Canada, the US and Germany
-2
-1,5
-1
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
10 year maturity -ARDL
-1
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
2 year maturity - ARDL
-1,00
-0,50
0,00
0,50
1,00
1,50
2,00
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
5 year maturity - ARDL
25
government bond yields are driven by other factors beyond the policy rate. Therefore the impact
of the crisis on the long run pass-through has been much more pronounced regarding government
bonds as opposed to money market rates.
5.c) Household deposits
Up to 2009, the pass-through for overnight deposits shows very large standard errors, but is still
significant. Nevertheless, from 2009 the long run impact is stable and significant throughout the
entire period with a coefficient of 18%. The immediate impact is only significant in the period
previous to the crisis, as well as the adjustment speed, showing a slowdown in the transmission
of policy rate to overnight rates. The pass-through weakens again from 2013 when the last round
of policy cuts was instituted by the Czech Central Bank, as rates for overnight deposits remained
stable despite the lower policy rate.
When regressing the overnight rate to the 2 year government bond yield, the long run coefficient
is significant only for the full period at 7%, but loses significance when analyzing the sub-
periods or running the rolling regression. Therefore the monetary approach is more suited for the
estimation of the pass-through.
Deposits with maturity less that 1 year are more responsive to changes in the policy rate, having
a long run pass-through of around 80%-85% up to the end of 2012, with the exception of a drop
at the end of 2008 which was due to market unrest. The long run coefficient becomes
insignificant from April 2013. The adjustment speed is 0,35 before crisis, showing that the
impact of the policy change in fully implemented in 3 months, but it becomes insignificant after
the crisis. Implementing the cost of funds approach, the pass-through from 3 month money
market rate is slightly higher (71% vs 66% for the entire period), but given their standard errors,
the results are not significantly different. Therefore the cost of funds approach yields consistent
results with the monetary approach.
On the other hand, deposits with maturities above 1 year are not impacted at all by changes in the
policy rate throughout the analyzed period, with short run, long run and adjustment speeds being
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overnight deposit -ECM
26
insignificant. The pass-through from the 10 year government bond yields is also not significant,
showing that deposits rates are not related to longer maturities either.
Given the very low volumes of deposits with higher maturities, the interest rate is quite sensitive
to changes in new amounts, therefore a high degree of volatility and low responsiveness is
expected. Furthermore, as banks seek long maturities in the context of uncertainty in market,
they are willing to pay a high premium above the policy rate in order to secure long term
funding, therefore changes in the policy rate are not reflected in these rates.
Even though the long run pass-through is significant for maturities up to 3 months from the
beginning of 2009, the long run impact is quite low at around 8%. As was seen with deposits
with agreed maturities, the coefficient ceases to become significant after 2013 as the policy rate
reached the zero lower bound. When employing the cost of funds method, the pass-through from
2 year government bond yields is not significant, therefore the monetary policy approach is
preferred for measuring the pass-through.
For deposits redeemable at notice with maturities above 3 months, the long run coefficient of
around 25% period preceding the crisis. Afterwards it decreases quite abruptly becoming
insignificant by the end of 2008. Since 2013, the long run pass-through has been improving as
rates fell slightly as the policy rate was decreased. The cost of funds approach yields an 11%
pass-through from 5 year government bond yield, showing that the policy rate has a larger
influence on deposit rates.
-1,5
-1
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity over 1 year - ARDL
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity -less than 1 year - ARDL
27
Deposits with short maturities such overnight and redeemable at notice have a low
responsiveness to changes in the policy rate. Preceding the crisis, deposits with agreed maturity
with maturities below 1 year had an almost complete pass-through, while those with maturities
above 1 year have an insignificant pass-through. Overall, the pass-through weakened during the
turmoil of 2008 and has become insignificant from the end of 2012 as the policy rate approached
the zero lower bound. Deposits redeemable above 3 months are the only exception, showing
improvement since 2013, yet they represent only a small fraction of funds held by population.
Lastly, the monetary approach seems better suited to describe the pass-through as deposit rates
show a higher responsiveness to changes in the policy rate as opposed to other money market
rates or government bond yields
5.d) Non-financial corporations deposits
The long run pass-through for overnight deposits is significant and stable at 29% for the entire
period. The adjustment speed is 0,25 for the entire period, increasing to 0,75 when analyzing the
period before the crisis showing a faster transmission from policy rate to overnight deposits.
Analyzing the rolling regression graph, the long run coefficient is stable at around 35% since
2009, but falls to 0% the end of 2012 as rates remained at the 0,25% level while the policy rate
fell to 0,05%. The long run pass-through measuredwith the cost of funds shows a similar
evolution as the market rate chosen in overnight which has a high correlation with the policy
rate.
-0,4
-0,3
-0,2
-0,1
0
0,1
0,2
0,3
0,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice -less 3
months -ARDL
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice over 3
months -ARDL
28
Unlike other rates, agreed maturity depositsshow a lower pass-through before the crisis as
compared to the period after the crisis. The pass-through steadily improves from 80% at the
beginning of 2008, stabilizing at 100% since mid-2011. The pass-through falls at the beginning
of 2013 to 60% as the policy rate stabilizesatthe 0,05% level. Furthermore, the adjustment speed
also improves in the period following the crisis with a coefficient of 0,7, compared to 0,5 for the
entire period.As in the case of overnight deposits, the results from the cost of funds approach are
very similar as the chosen money market rate is overnight one.
The long run pass-through for deposits redeemable at notice starts out at around 60% for period
between January 2004 August 2008, but falls sharply until J anuary 2009 to a minimum of
10%.For the next four years it stabilizes around 30%, decreasing again to levels shown during
the crisis from the end of 2013.The cost of funds approach measures the pass-through from the 2
year government bond yield, showing a much weaker pass-through.
-0,1
0
0,1
0,2
0,3
0,4
0,5
0,6
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overnight -ECM
0
0,2
0,4
0,6
0,8
1
1,2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity -ECM
29
Comparing to household deposits, the pass-through for overnight and deposits redeemable at
notice is higher by 10%-30% for the entire analyzed period. On the other hand, deposits with
agreed maturity have similar pass-through preceding the crisis, but are much more resilient since.
Unlike household deposits that have become insignificant, agreed maturity deposits for
corporations still have a 60% pass-though.
5.e) Household loans
Floating mortgages have long run pass-through of 75%, yet very high standard errors. From
analysis of rolling regression output, it is observable that the long run coefficient quickly
becomes insignificant and remains so until the end of the analyzed period. The situation is quite
similar for mortgages above 1 year, starting out with a pass-through of 70% but becoming
insignificant by the end of 2008.Given that mortgages with interest rate fixation above 1 year
make up 50% of overall new loans, the disruption of the pass-through from policy rate to
mortgage rates is quite worrying in assesing the impact of the central bank on real economy.
The cost of funds approach calculates the pass-through from 10 year government bond yeilds to
mortgages and shows much weaker results. Despite their long maturities, mortgages are priced
more in accordance to development of the policy rate, rather than instrumetns with longer
maturities.
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice -ARDL
30
The pass-through for consumer credit loans is insignificant for both short run and long run
impact. This is expected as these types of loans have a very high unit costs, low elasticity of
substituion with other financial goods and a high credit risk. Therefore banks price such loans
with a high margin above policy rate.
Credit cards and overdrafts are in a similar situation as they have high unit price per ticket, poor
collateral and high credit risk. Therefore results not significant for either of the sub-periods
analyzed. When calculating the pass-through using the cost of funds methodology, consumer
credit loans, credit cards and overdrafts have the highest correlation with 10 year government
bond yields but still have an insignificant pass-through.
-2,5
-1,5
-0,5
0,5
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Mortgage less 1 year -ECM
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Mortgages over 1 year -ARDL
-3
-2
-1
0
1
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Consumer credit less 1 year - ARDL
-2
-1
0
1
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Consumer credit over 1 year - ARDL
31
5.f) Non-financial corporations loans
Before the crisis, loans below 30 mio CZK exhibited a full pass-through with a long run
coefficient of 106%. Looking at the two different interest rate fixation periods, floating rates are
much more responsive to changes in the policy rate and the pass-through becomes insignificant
only at the end of 2011. On the other hand, loans with interest rate fixation period start out with a
lower long run pass-through (85% vs 95% for floating rates) and decreases much faster,
becoming insignificant from the beginning of 2009.
While in the period preceding the crisis, loans over 30 mio CZK had a lower pass-through (86%)
compared to loans up to 30 mio CZK (106%), these loans have maintained a substantial pass-
through from the beginning of the crisis. The pass-through weakened by 30% starting in 2009,
finally becoming insignificant as the policy rate was approached the zero lower bound in at the
end of 2012.
-1
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overdrafts
-2
-1
0
1
2
3
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Credit cards
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans up to 30 mio CZK -up to 1
year -ECM
-1
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans up to 30 mio CZK -over 1
year -ARDL
32
Overdrafts for non-financial corporations start with a long run pass-through of 70%, falling to
60% at the beginning of 2009. Since 2013, the pass-through has become insignificant.
Compared to the monetary policy approach, the cost of funds approach yields similar results for
loans over 30 mio CZK which are regressed to the 1 year money market rate, but less significant
results for loans up to 30 mio CZK and overdrafts which are regressed to the 2 year government
bond yield.
6. Conclusion
The purpose of this paper is to analyze to what extent the policy rate set by Czech National
Bank impacts interest rates for deposits and loans. An error correction model was used when
cointegration was found, allowing both long run and short run dynamics to be analyzed. For
household deposits, only overnight rates were cointegrated with the policy rate for the entire
period, while agreed maturity deposits and deposits redeemable up to 3 months were
cointegrated in the period prior to August 2008. Out of the household loan rates, only
mortgages with floating rates are integrated for the full period. For non-financial
corporations, both loans up to 30 mio CZK and over 30 mio CZK are found to be
cointegrated for the entire period. This is not surprising given that these loans also exhibited
the highest pass-through. In the absence of cointegration, a first differenced ARDL model
was employed.
The monetary policy approach analyzes the pass-through from the policy rate to bank rates,
while the cost of funds examines at the pass-through from market rates to bank rates. Out of
the two methods employed, the monetary approach has yielded most consistent results,
showing that banks price their products in accordance to the policy rate.
By analyzing separately the periods before August 2008 and afterwards, the impact of the
crisis on the pass-through can be identified. Furthermore, a rolling regression method was
-0,2
0
0,2
0,4
0,6
0,8
1
1,2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overdrafts -ARDL
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans over 30 mio CZK -ECM
33
also used in order to examine the impact of the crisis in a gradual manner and detect the
existence structural breaks endogenously.
For the period before 2009, the pass-through to money market rates was complete for money
market rates and varied between 60% and 80% for government bond yields. Overnight and
redeemable at notice deposits had a low pass-through between 8% and 17% for households
and 30% and 50% for non-financial corporations. Agreed maturity deposits for non-financial
corporations and households had a pass-through of around 80%.
Since the onset of the crisis, the pass-through to money market rates has decreased, but
remained significant, stabilizing around 60%, showing that interbank money market rates are
still influenced by the decisions of the Central Bank. With the exception of household
deposits redeemable at notice over 3 months, the long run pass-through for overnight and
redeemable at notice deposits has become insignificant over the past two years. On the other
hand, the pass-through for agreed maturity deposits strengthened in the aftermath of the
crisis, as can be seen from the table below. Since J une 2012 as the policy rate approached
the 0,05% level, the pass-through slumped, becoming insignificant for households and 60%
for non-financial corporations While the pass-through was slightly weakened during the
market unrest of 2008, the impact of the policy rate to influence deposit rates has
considerably deteriorated since it has approached the zero lower bound.
Households
Non-financial
corporations
Deposits
Pre
break
Post
break
Pre
break
Post
break
Overnight
0.16** 0.13** 0.07 -0.03
-(0.07) -(0.04) (0.11) (0.33)
Agreed maturity up
to 1 year
0.49** 0.68**
0.5** 0.98**
(0.16) -(0.23)
Agreed maturity over
1 year
0.25 -0.30
(0.17) -(0.06)
(0.42) -(0.28)
Redeemable at notice
- up to 3 months
0.08 -0.01
0.57** 0.26
(0.05) (0.02)
Redeemable at notice
- Over 3 months
0.26** 0.04
-(0.15) (0.24)
-(0.05) -(0.06)
For households, mortgages make up the majority of outstanding amounts and are the only
loans which exhibited a significant pass-through before the crisis. Loans and overdrafts for
non-financial corporations showed a full pass-through for floating rates and almost full pass-
through for fixed rates until 2009. Since 2009, the pass-through has become insignificant for
mortgages and fixed rate loans up to 30 mio CZK. The pass-through for larger loans and
floating rate loans up to 30 mio CZK has remained significant, but greatly reduced.
34
Loans Pre break Post break
Mortgage - Floating rate and up to
1 year rate fixation
0.69** -(0.18)
-(0.25) (0.15)
Mortgage - Over 1 year rate
fixation
0.65** -(0.04)
-(0.16) -(0.08)
Loans up to 30 mio CZK -
Floating rate and up to 1 year rate
fixation
1.14** 0.25**
-(0.31) -(0.11)
Loans up to 30 mio CZK - Over 1
year rate fixation-
0.8** (0.06)
-(0.16) -(0.23)
Loans over 30 mio CZK 0.82** 0.67**
-(0.10) -(0.20)
Based on the tables above, there is a large degree of heterogeneity in how the pass-through
has evolved over the past years. Loans for households and small business were impacted the
most by the crisis, while loans for larger businesses were impacted only later on. Since the
policy rate has approached the zero lower bound, there have been other factors driving
interest rates for loans and deposits. Regarding deposits, banks have sought to secure long
term funding, therefore they have not decreased rates for long term deposits with the policy
rate. Regarding loans, concerns for the solvency of the borrowers and the slow lending
growth, have made banks increase their markup over funding costs in order to preserve
profitability. Thus, interest rates for loans have not fallen since June 2012, even though the
Czech National Bank has cut the policy rate by 0,7% since then.
As the economy recovers and loan growth picks up, the pass-through is expected to improve
as the policy rate moves above the zero lower bound and banks transfer additional funding
costs to their customers. Until then, the Czech National Bank must look beyond traditional
instruments such as the policy rate, in order to influence the economy.
35
Bibliography
Babeck-Kucharukov, O., et al. (2013). What We Know About Monetary Policy Transmission
in the Czech Republic: Collection of Empirical Results, Czech National Bank, Research
Department.
Beckmann, J., et al. (2013). "Interest Rate Pass-Through and Banking Crises."
Bernanke, B. S. and A. S. Blinder (1992). "The federal funds rate and the channels of monetary
transmission." American economic review82(4): 901-921.
Claeys, P. and B. Vaek (2012). "Measuring sovereign bond spillover in Europe and the impact
of rating news." Czech National Bank, Working Paper(7).
CNB (2008). "Adjustment of technical parameters of liquidity-providing repo operations."
Retrieved 18.06.2014, 2014.
CNB (2008). Financial Stability Report 2007, Czech National Bank, Research Department.
CNB (2009). Financial Stability Report 2008/2009, Czech National Bank, Research Department.
CNB (2011). Financial Stability Report 2010/2011, Czech National Bank, Research Department.
CNB (2012). Financial Stability Report 2011/2012, Czech National Bank, Research Department.
CNB (2013). Financial stability report 2012/2013, Czech National Bank, Research Department.
Coricelli, F., et al. (2006). "Monetary Transmission Mechanism in Central & Eastern Europe:
Gliding on a Wind of Change."
De Bondt, G., et al. (2005). Term structure and the sluggishness of retail bank interest rates in
euro area countries, Citeseer.
De Bondt, G. J . (2005). "Interest Rate Pass-Through: Empirical Results for the Euro Area."
German Economic Review6(1): 37-78.
gert, B., et al. (2007). "Interest rate pass-through in central and Eastern Europe: Reborn from
ashes merely to pass away?" Journal of Policy Modeling29(2): 209-225.
36
Gambacorta, L. (2005). "Inside the bank lending channel." European Economic Review 49(7):
1737-1759.
Gersl, A. and J . Lesanovska (2013). Explaining the Czech Interbank Market Risk Premium,
Czech National Bank, Research Department.
Gertler, M. and S. Gilchrist (1994). "Monetary policy, business cycles, and the behavior of small
manufacturing firms." The Quarterly J ournal of Economics109(2): 309-340.
Horvth, R. and A. Podpiera (2012). "Heterogeneity in bank pricing policies: The Czech
evidence." Economic Systems36(1): 87-108.
J imborean, R. (2009). "The role of banks in the monetary policy transmission in the new EU
member states." Economic Systems33(4): 360-375.
Kim, M., et al. (2003). "Estimating switching costs: the case of banking." J ournal of Financial
Intermediation12(1): 25-56.
Laeven, L. and F. Valencia (2013). "Systemic banking crises database." IMF Economic Review
61(2): 225-270.
Mojon, B. (2000). "Financial structure and the interest channel of the ECB monetary policy."
CEPR/EUROPEAN SUMMER INSTITUTE 1999: 44.
Ozdemir, N. and C. Altinoz (2012). "Determinants of Interest Rate Pass-through for Emerging
Market Economies: The Role of Financial Market Structure." International Advances in
Economic Research18(4): 397-407.
Reuters (2011). "S&P raises Czech rating by two notches to AA." Retrieved 18.062014, 2014.
Sander, H. and S. Kleimeier (2004). "Convergence in euro-zone retail banking? What interest
rate pass-through tells us about monetary policy transmission, competition and integration."
Journal of International Money and Finance23(3): 461-492.
Sander, H. and S. Kleimeier (2004). Interest rate pass-through in an enlarged Europe: the role of
banking market structure for monetary policy transmission in transition countries, METEOR,
Maastricht research school of Economics of TEchnology and ORganizations.
37
Singh, S., et al. (2008). "Impact of financial market developments on the monetary transmission
mechanism." Bank for International Settlements Press & Communications CH 4002 Basel,
Switzerland: 49.
Stiglitz, J. E. and A. Weiss (1981). "Credit rationing in markets with imperfect information." The
American Economic Review: 393-410.
Tieman, A. F. (2004). Interest rate pass-through in Romania and other central European
economies, International Monetary Fund.
Van Leuvensteijn, M., et al. (2008). "Impact of bank competition on the interest rate pass-
through in the euro area."
Weth, M. A. (2002). The pass-through from market interest rates to bank lending rates in
Germany, Discussion paper Series 1/Volkswirtschaftliches Forschungszentrum der Deutschen
Bundesbank.
38
Appendix
Appendix A Unit root test results
Values in brackets are MacKinnon approximate p-value for Augmented Dickey Fuller and
Phillips-Perron test. A low p-value signifies the rejection of the null hypothesis of a unit root.
Kwiatkowski, Phillips, Schmidt, and Shin critical values are 0.347 for 10% significance level
and 0.463 for 5% significance level . Any values above indicate we can reject the null hypothesis
of stationarity
1st difference
Money market rates ADF PP KPSS ADF PP KPSS
Overnight -1.01 -0.69 0.69 -3.32 -11.20 0.16 I(1)
(0.75) (0.85) (0.01) (0.00)
1 month -1.21 -0.66 0.62 -3.10 -7.31 0.19 I(1)
(0.67) (0.86) (0.03) (0.00)
3 months -1.38 -0.67 0.57 -3.17 -5.77 0.21 I(1)
(0.59) (0.85) (0.02) (0.00)
6 months -1.26 -0.64 0.55 -3.45 -5.88 0.23 I(1)
(0.65) (0.86) (0.01) (0.00)
1 year -1.12 -0.61 0.55 -3.88 -6.16 0.23 I(1)
(0.71) (0.87) (0.00) (0.00)
1st difference
Government bond yields ADF PP KPSS ADF PP KPSS
2 years maturity -1.03 -0.52 0.72 -4.37 -8.34 0.16 I(1)
(0.74) (0.89) (0.00) (0.00)
5 years maturity -0.85 -0.72 0.69 -5.51 -8.50 0.12 I(1)
(0.80) (0.84) (0.00) (0.00)
10 years maturity -1.33 -1.11 0.56 -4.59 -7.85 0.09 I(1)
(0.61) (0.71) (0.00) (0.00)
39
1st difference
Household deposits PP KPSS ADF PP KPSS
Overnight -1.87 -1.38 0.41 -2.89 -8.18 0.20 I(1)
(0.35) (0.59) (0.05) (0.00)
With agreed maturity up to 1
year
-1.87 -1.73 0.26 -3.41 -10.00 0.10
I(1)
(0.35) (0.42) (0.01) (0.00)
With agreed maturity over 1
and up to 2 years
-1.84 -3.88 0.49 -5.19 -17.38 0.05 I(1)
(0.36) (0.00) (0.00) (0.00)
With agreed maturity over 2
years
-2.41 -4.67 0.08 -4.43 -20.08 0.06 I(1)
(0.14) (0.00) (0.00) (0.00)
Redeemable at notice up to 3
months
-1.91 -2.99 0.26 -3.60 -7.75 0.92 I>1
(0.33) (0.04) (0.01) (0.00)
Redeemable at notice over 3
months
-1.09 -1.40 0.59 -5.02 -10.19 0.10 I(1)
(0.72) (0.58) (0.00) (0.00)
1st difference
NFC deposits ADF PP KPSS ADF PP KPSS
Overnight -1.79 -1.27 0.55 -3.81 -12.80 0.10 I(1)
(0.38) (0.64) (0.00) (0.00)
Agreed maturity - total -1.61 -1.01 0.61 -2.96 -9.64 0.14 I(1)
(0.48) (0.75) (0.04) (0.00)
Redeemable at notice - total -2.08 -1.94 0.22 -3.47 -10.24 0.19 I(1)
(0.25) (0.32) (0.01) (0.00)
40
1st difference
Household loans ADF PP KPSS ADF PP KPSS
Consumer credit - Floating rate
and up to 1 year rate fixation
-0.92 -1.54 0.21 -4.11 -12.10 0.18 I(1)
(0.78) (0.51) (0.00) (0.00)
Consumer credit - Over 1 year
rate fixation
-2.76 -2.01 0.17 -3.88 -12.23 0.19 I(1)
(0.06) (0.28) (0.00) (0.00)
Mortgage - Floating rate and
up to 1 year rate fixation
-1.22 -0.80 0.34 -2.43 -7.45 0.14 I(1)
(0.67) (0.82) (0.13) (0.00)
Mortgage - Over 1 year rate
fixation
-0.32 -0.20 0.54 -3.51 -8.05 0.21 I(1)
(0.92) (0.94) (0.01) (0.00)
Overdrafts -0.90 -1.47 0.96 -5.09 -14.14 0.09 I(1)
(0.79) (0.55) (0.00) (0.00)
Credit cards total -2.52 -2.68 0.13 -3.91 -11.73 0.06 I(1)
(0.11) (0.08) (0.00) (0.00)
NFC loans ADF PP KPSS ADF PP KPSS
Loans up to 30 mio CZK
total
-0.60 -0.79 0.69 -4.22 -15.01 0.26 I(1)
(0.87) (0.82) (0.00) (0.00)
Loans over 30 mio CZK -
total
-1.11 -1.14 0.45 -3.58 -12.72 0.21 I(1)
(0.71) (0.70) (0.01) (0.00)
Overdrafts - total -1.02 -0.42 0.74 -3.67 -15.06 0.17 I(1)
(0.75) (0.91) (0.00) (0.00)
41
Appendix B Cointegration test results- monetary approach
A * indicates the existence of cointegration rank 1.
Money market rates
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Overnight 3,43* 2 1,75* 5.13
1 month 3.95 2 3,68* 15.21
3 months 3.8 2 2,99* 18.9
1 year 3.2 2 2,92* 7.68
Government bond
yields
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
2 years maturity 3.09 2 4.41 6.35
5 years maturity 3.38 2 3,5* 5.82
10 years maturity 3.21 2 2,63* 6.59
Household deposits
Trace statistic
rank 1
Lagsselected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Overnight 1,99* 4 0,84 0,38
Agreed maturity up to
1 year
5,99 4 1,72* 13,73
Agreed maturity over
1 year
8,64 4 3,02* 5,29
Redeemable at notice
- up to 3 months
6,23 4 2,59* 0,16*
Redeemable at notice
- Over 3 months
6,16 4 1,6 17,42
42
NFC deposits
Tracestatistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Overnight - NFC 4,73 4 0,93* 0,93*
Agreed maturity total 1,45 4 1,23* 6,22
Redeemable at notice 4,95 4 3,62 2,55*
Household loans
Tracestatistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Consumer credit -
Floating rate and up to
1 year rate fixation
3,41 4 1,37 7,97
Consumer credit - Over
1 year rate fixation
6,85 4 2,04 8
Mortgage - Floating
rate and up to 1 year
rate fixation
3,55* 4 3,85 0,54*
Mortgage - Over 1 year
rate fixation
2,30 4 2,02 10,36
Overdrafts 5,60 4 2,62* 14,01
Credit cards 6,44 4 1,74* 6,63
NFC Loans
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Loansupto 30 mio CZK 0.5* 2 2.04 13.68
Loansupto 30 mio CZK -
Floating rate and up to 1
year rate fixation
3.43* 2 2.54 14
Loansupto 30 mio CZK
- Over 1 year rate fixation
5.90 4 2.8* 13
Loans over 30 mio CZK 3.72* 4 1,89* 11.46
Overdrafts 3.10 4 1,19* 11.64
43
Appendix C Bond correlation
Household deposits Max correlation Market rate Lags
Overnight 0.28 GB2Y L4
Agreed maturity up to 1 year 0.84 MM3M L1
Agreed maturity over 1 year 0.19 GB10Y L3
Redeemable at notice - up to 3 months 0.59 GB2Y L4
Redeemable at notice - Over 3 months 0.87 GB5Y L1
NFC deposits Max correlation Market rate Lags
Overnight 0.94 MM1D L1
Agreed maturity total 0.98 MM1D L1
Redeemable at notice 0.61 GB2Y L4
Household loans Max correlation Market rate Lags
Consumer credit - Floating rate and up to 1
year rate fixation
0.63 GB10Y L3
Consumer credit - Over 1 year rate fixation 0.02 GB10Y L3
Mortgage - Floating rate and up to 1 year
rate fixation
0.86 GB10Y L1
Mortgage - Over 1 year rate fixation 0.94 GB10Y L2
Overdrafts -0.52 GB10Y L3
Credit cards 0.50 GB10Y L3
NFC Loans Max correlation Market rate Lags
Loansupto 30 mio CZK 0.96 GB2Y L1
Loansup to 30 mio CZK - Floating rate and
up to 1 year rate fixation
0.96 MM1D L1
Loans up to 30 mioCZK - over 1 year rate
fixation
0.75 GB2Y L1
Loans over 30 mio CZK 0.94 MM1Y L1
Overdrafts - NFC 0.96 GB2Y L1
44
Appendix D Cointegration test results -cost of funds method
A * indicates the existence of cointegration rank 1.
Household deposits
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Overnight 5.50 2 0.05* 2
Agreed maturity up to 1
year
3.03 3 3.42* 3
Agreed maturity over 1
year
2.79 3 2.07 3
Redeemable at notice - up
to 3 months - HH
4.46 2 4.91 2*
Redeemable at notice -
Over 3 months
3.71 3 4.4 3
NFC deposits
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Overnight - NFC 5.56 4 0.87* 4
Agreed maturity total -
NFC
2.78 4 3.18* 4
Redeemable at notice -
NFC
5.32 3 4.08 2
Household loans
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Consumer credit -
Floating rate and up to 1
year rate fixation
1.16 3 3.88 3
Consumer credit - Over 1
year rate fixation
6.88 3 2.57 3
Mortgage - Floating rate
and up to 1 year rate
fixation
1.27 4 1.42 3*
Mortgage - Over 1 year
rate fixation
1.44 3 1.74 3
Overdrafts 3.77 3 5.63 3
Credit cards 3.86 3 2.78 3
45
NFC Loans
Trace statistic
rank 1
Lags
selected
Trace statistic
rank 1 - pre
break
Trace statistic
rank 1 - post
break
Loansupto 30 mio CZK 4.00 2 2.47 3
Loansup to 30 mio CZK -
Floating rate and up to 1
year rate fixation
2,7* 4 0,94* 16
Loans up to 30 mioCZK -
over 1 year rate fixation
4.4 3 3.43 8.83
Loans over 30 mio. CZK 2.68 3 2.07* 3
Overdrafts 3.86 3 3.19* 4
Appendix E Results monetary approach
Standard errors are presented in brackets below the coefficients. A ** denotes that results are
significant at 5% level.
Money market rates
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Overnight
0.33 0.74 -0.54
3 ECM
-(0.14) -(0.11) -(0.14)
Overnight - pre break
0.83** 0.97** 0.08
3 ECM
-(0.11) -(0.08) -(0.11)
Overnight - post break
0.66** 0.94** 0.79**
2 ARDL
-(0.10) -(0.03) -(0.04)
1 month
0.53** 0.99** 0.23**
3 ARDL
-(0.06) -(0.06) -(0.06)
1 month - pre break
0.6** 0.92** -0.29
2 ECM
-(0.13) -(0.11) -(0.13)
1 month - post break
0.23** 0.99** 0.19**
3 ARDL
-(0.08) -(0.10) -(0.08)
3 months
0.38** 0.98** 0.28**
3 ARDL
-(0.06) -(0.07) -(0.06)
3 months - pre break
0.54** 1.04** -0.16**
2 ECM
-(0.11) -(0.16) -(0.08)
3 months - post break
0.08 0.94** 0.22**
3 ARDL
-(0.07) -(0.10) -(0.07)
1 year
0.31** 0.9** 0.36**
2 ARDL
-(0.07) -(0.11) -(0.07)
1 year - pre break
0.64** 1.47** -0.24**
2 ECM
-(0.13) -(0.28) -(0.08)
1 year - post break
0.06 0.8** 0.14
3 ARDL
46
-(0.08) -(0.11) -(0.08)
Government bonds
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
2 years maturity
0.33** 0.68** 0.22
2 ARDL
-(0.12) -(0.15) -(0.12)
2 years maturity- pre break
0.58** 0.92** 0.55**
2 ARDL
-(0.18) -(0.24) -(0.18)
2 years maturity- post
break
0.1 0.42** 0.15
3 ARDL
-(0.15) -(0.16) -(0.17)
5 years maturity
0.16 0.19 0.28
3 ARDL
-(0.13) -(0.20) -(0.14)
5 years maturity- pre break
0.39** 0.87** 0.15**
2 ECM
(0.19) (0.38) (0.08)
5 years maturity- post
break
-0.09 -0.12 0.19
3 ARDL
-(0.18) -(0.24) -(0.20)
10 years maturity
0.11 0.18 0.15
2 ARDL
-(0.13) -(0.20) -(0.13)
10 years maturity- pre
break
0.36** 0.65** -0.09
2 ECM
(0.17) (0.33) (0.05)
10 years maturity- post
break
-0.07 -0.11 0.01
2 ARDL
-(0.19) -(0.30) -(0.19)
47
Household deposits
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Overnight
0.04** 0.17** 0.02
3 ECM
(0.02) (0.03) (0.02)
Overnight - pre break
0.04** 0.16** 0.06**
2 ARDL
-(0.02) -(0.07) -(0.02)
Overnight - post break
0 0.13** 0
3 ARDL
-(0.02) -(0.04) -(0.02)
Agreed maturity up to 1
year
0.34** 0.71** 0.31**
2 ARDL
-(0.10) -(0.12) -(0.10)
Agreed maturity up to 1
year- pre break
0.38** 0.49** -0.35**
2 ECM
(0.16) (0.16) (0.17)
Agreed maturity up to 1
year- post break
0.15 0.68** 0.34
2 ARDL
-(0.18) -(0.23) -(0.18)
Agreed maturity over 1
year
-0.12 0 -0.22
3 ARDL
-(0.26) -(0.20) -(0.28)
Agreed maturity over 1
year- pre break
0.23 0.25 -0.19
3 ECM
(0.58) (0.42) (0.14)
Agreed maturity over 1
year- post break
-0.21 -0.3 -0.24
2 ARDL
-(0.27) -(0.28) -(0.27)
Redeemable at notice - up
to 3 months
0.04** 0.08** 0.02
2 ARDL
-(0.01) -(0.03) -(0.01)
Redeemable at notice - up
to 3 months - pre break
0.08** 0.08 -0.07**
2 ECM
(0.03) (0.05) (0.03)
Redeemable at notice - up
to 3 months - post break
0.01 -0.01 0.06
2 ECM
(0.01) (0.02) (0.05)
Redeemable at notice -
Over 3 months
0.03 0.13** 0.1**
2 ARDL
-(0.03) -(0.05) -(0.03)
Redeemable at notice -
Over 3 months - pre break
0.16** 0.26** 0.1**
2 ARDL
-(0.03) -(0.05) -(0.03)
Redeemable at notice -
Over 3 months - post
break
-0.07 0.04 0.13**
4 ARDL
-(0.05) -(0.06) -(0.05)
48
NFC deposits
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Overnight
0.17** 0.29** 0.25**
2 ARDL
-(0.03) -(0.02) -(0.03)
Overnight- pre break
0.07 0.07 -0.75**
2 ECM
(0.10) (0.11) (0.28)
Overnight- post
break
0.11** -0.03 -0.34**
4 ECM
(0.06) (0.33) (0.10)
Agreed maturity total
0.66** 0.93** 0.49**
3 ARDL
-(0.07) -(0.04) -(0.05)
Agreed maturity total
- pre break
0.39** 0.5** -0.37
2 ECM
(0.19) (0.17) (0.22)
Agreed maturity total
- post break
0.58** 0.98** 0.72**
2 ARDL
-(0.10) -(0.06) -(0.07)
Redeemable at notice
0.09 0.45** 0.02
3 ARDL
-(0.05) -(0.10) -(0.05)
Redeemable at notice
- pre break
0.36** 0.57** 0.07
2 ARDL
-(0.06) -(0.15) -(0.06)
Redeemable at notice
- post break
-0.11 0.26 -0.11**
4 ECM
(0.09) (0.24) (0.05)
49
Household loans
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Consumer credit - Floating rate and
up to 1 year rate fixation
0.37 -0.07 0.26
2 ARDL
-(0.41) -(0.45) -(0.41)
Consumer credit - Floating rate and
up to 1 year rate fixation- pre break
0.9 0.6 1.19**
2 ARDL
-(0.61) -(0.72) -(0.58)
Consumer credit - Floating rate and
up to 1 year rate fixation- post
break
0 -0.85 -0.52
2 ARDL
-(0.60) -(0.68) -(0.59)
Consumer credit - Over 1 year rate
fixation
-0.32 0.22 0.26
4 ARDL
-(0.23) -(0.34) -(0.23)
Consumer credit - Over 1 year rate
fixation- pre break
0.01 0.84 0.36
2 ARDL
-(0.44) -(0.62) -(0.42)
Consumer credit - Over 1 year rate
fixation- post break
-0.08 -0.2 0.23
2 ARDL
-(0.23) -(0.21) -(0.23)
Mortgage - Floating rate and up to
1 year rate fixation
0.19** 0.03 -0.03**
4 ECM
(0.09) (0.21) (0.02)
Mortgage - Floating rate and up to
1 year rate fixation- pre break
0.44** 0.69** -0.08
3 ARDL
-(0.15) -(0.25) -(0.15)
Mortgage - Floating rate and up to
1 year rate fixation- post break
0.04 -0.18 -0.04**
2 ECM
(0.09) (0.15) (0.02)
Mortgage - Over 1 year rate
fixation
0.11** 0.26** 0.01
2 ARDL
-(0.04) -(0.09) -(0.04)
Mortgage - Over 1 year rate
fixation- pre break
0.17** 0.65** 0.14
2 ARDL
-(0.08) -(0.16) -(0.08)
Mortgage - Over 1 year rate
fixation- post break
0.07 -0.04 -0.07
2 ARDL
-(0.05) -(0.08) -(0.05)
Overdrafts
0.07 -0.12 0
4 ARDL
-(0.13) -(0.16) -(0.13)
Overdrafts- pre break
0.02 0.02 -0.3**
2 ECM
(0.20) (0.30) (0.08)
Overdrafts- post break
0.09 0.16 0.1
2 ARDL
-(0.15) -(0.27) -(0.15)
Credit cards
0.12 -0.07 0.03
2 ARDL
-(0.31) -(0.35) -(0.31)
Credit cards - pre break
0 0.84 -0.17**
3 ECM
(0.42) (0.68) (0.09)
Credit cards - post break
0.04 -0.57 -0.3
2 ARDL
-(0.46) -(0.54) -(0.46)
50
NFC loans
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Loans up to 30 mio CZK
0.16 0.2 -0.27**
2 ECM
(0.13) (0.14) (0.07)
Loans up to 30 mio CZK - pre
break
0.43** 1.06** 0.45**
2 ARDL
-(0.16) -(0.26) -(0.15)
Loans up to 30 mio CZK - post
break
0.27 0.21 -0.07
2 ARDL
-(0.17) -(0.14) -(0.17)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation
(0.12) (0.27) (0.13)
2 ECM
-(0.14) -(0.17) -(0.12)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation- pre break
(0.41) 1.14** 0.51**
2 ARDL
-(0.20) -(0.31) -(0.19)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation- post break
(0.27) 0.25** (0.05)
4 ARDL
-(0.19) -(0.11) -(0.20)
Loans up to 30 mio CZK - Over
1 year rate fixation
(0.35) (0.22) -(0.17)
4 ARDL
-(0.18) -(0.13) -(0.18)
Loans up to 30 mio CZK - Over
1 year rate fixation - pre break
(0.62) 0.8** (0.38)
3 ECM
-(0.23) -(0.16) -(0.21)
Loans up to 30 mio CZK - Over
1 year rate fixation - post break
(0.07) (0.06) (0.04)
2 ARDL
-(0.26) -(0.23) -(0.26)
Loans over 30 mio CZK
0.38** 0.76** -0.09
3 ECM
(0.14) (0.12) (0.05)
Loans over 30 mio CZK - pre
break
0.63** 0.82** 0.51**
2 ARDL
-(0.14) -(0.10) -(0.14)
Loans over 30 mio CZK - post
break
0.59** 0.67** -0.01
4 ARDL
-(0.22) -(0.20) -(0.22)
Overdrafts
0.3** 0.58** 0.44**
4 ARDL
-(0.09) -(0.05) -(0.08)
Overdrafts- pre break
0.28 0.48** -0.2
2 ECM
(0.18) (0.16) (0.12)
Overdrafts- post break
0.11 0.45** 0.46**
4 ARDL
-(0.12) -(0.05) -(0.09)
51
Appendix F Results cost of funds approach
Standard errors are presented in brackets below the coefficients. A ** denotes that results are
significant at 5% level.
Household deposits
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Overnight
0.01 0.07** 0.01
2 ARDL
-(0.01) -(0.03) -(0.01)
Overnight - pre break
-0.01 0.05 -0.03
2 ECM
-(0.02) -(0.05) -(0.04)
Overnight - post break
0.01 0.06 0.01
2 ARDL
-(0.01) -(0.04) -(0.01)
Agreed maturity up to 1
year
-0.02 0.66** 0.59**
3 ARDL
-(0.16) -(0.11) -(0.13)
Agreed maturity up to 1
year- pre break
0.02 0.57** -0.41**
2 ECM
-(0.14) -(0.11) -(0.13)
Agreed maturity up to 1
year- post break
-0.12 0.57** 0.62**
3 ARDL
-(0.34) -(0.24) -(0.25)
Agreed maturity over 1
year
0.16 0.2 -0.53**
3 ARDL
-(0.20) -(0.15) -(0.09)
Agreed maturity over 1
year- pre break
-0.29 0.4 -0.59**
2 ARDL
-(0.45) -(0.33) -(0.14)
Agreed maturity over 1
year- post break
0.27 -0.19 -0.23
3 ARDL
-(0.18) -(0.25) -(0.13)
Redeemable at notice - up
to 3 months
0.02 0.04 0
2 ARDL
-(0.01) -(0.02) -(0.01)
Redeemable at notice - up
to 3 months - pre break
0.01 0.03 -0.07**
2 ARDL
-(0.02) -(0.03) -(0.02)
Redeemable at notice - up
to 3 months - post break
0.01 -0.01 -0.01
2 ARDL
(0.00) -(0.02) (0.00)
Redeemable at notice -
Over 3 months
0.04 0.11** 0.03
3 ARDL
-(0.02) -(0.04) -(0.02)
Redeemable at notice -
Over 3 months - pre break
0.01 0.11** 0.03
2 ARDL
-(0.03) -(0.05) -(0.02)
Redeemable at notice -
Over 3 months - post break
0.06 0.1 0.04
3 ARDL
-(0.03) -(0.07) -(0.03)
52
NFC deposits
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Overnight
0.23** 0.26** 0.22**
4 ARDL
-(0.04) -(0.02) -(0.03)
Overnight- pre break
0.07 0.2** -0.4
2 ECM
-(0.06) -(0.08) -(0.24)
Overnight- post break
0.16** 0.28** 0.26**
4 ARDL
-(0.05) -(0.03) -(0.03)
Agreed maturity total
0.47** 0.91** 0.71**
4 ARDL
-(0.08) -(0.04) -(0.04)
Agreed maturity total - pre
break
0.38 0.74** 0.28
2 ECM
-(0.22) -(0.06) -(0.20)
Agreed maturity total -
post break
0.66** 1.01** 0.72**
4 ARDL
-(0.12) -(0.06) -(0.08)
Redeemable at notice
0.14** 0.3** 0.04
3 ARDL
-(0.04) -(0.08) -(0.04)
Redeemable at notice - pre
break
0.11 0.42** 0.13**
2 ARDL
-(0.06) -(0.11) -(0.05)
Redeemable at notice -
post break
0.13** 0.13 -0.01
2 ARDL
-(0.06) -(0.12) -(0.06)
53
Household loans
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Consumer credit - Floating rate
and up to 1 year rate fixation
0.3 0.06 0.02
3 ARDL
-(0.32) -(0.42) -(0.30)
Consumer credit - Floating rate
and up to 1 year rate fixation-
pre break
-0.01 0.38 -0.34
2 ARDL
-(0.56) -(0.54) -(0.50)
Consumer credit - Floating rate
and up to 1 year rate fixation-
post break
0.37 -0.09 0.15
3 ARDL
-(0.40) -(0.61) -(0.37)
Consumer credit - Over 1 year
rate fixation
-0.04 0.02 -0.23
3 ARDL
-(0.17) -(0.27) -(0.15)
Consumer credit - Over 1 year
rate fixation- pre break
-0.07 0.21 -0.04
2 ARDL
-(0.37) -(0.46) -(0.34)
Consumer credit - Over 1 year
rate fixation- post break
-0.06 -0.25 -0.3**
3 ARDL
-(0.16) -(0.18) -(0.15)
Mortgage - Floating rate and up
to 1 year rate fixation
0.1 0.44** 0.02
4 ARDL
-(0.06) -(0.13) -(0.05)
Mortgage - Floating rate and up
to 1 year rate fixation- pre break
0.2 0.61** 0
4 ARDL
-(0.14) -(0.20) -(0.12)
Mortgage - Floating rate and up
to 1 year rate fixation- post
break
0.03 0.12 -0.02
3 ECM
-(0.06) -(0.17) -(0.02)
Mortgage - Over 1 year rate
fixation
0.12** 0.31** -0.01
3 ARDL
-(0.03) -(0.09) -(0.03)
Mortgage - Over 1 year rate
fixation- pre break
0.16** 0.53** 0
3 ARDL
-(0.07) -(0.17) -(0.06)
Mortgage - Over 1 year rate
fixation- post break
0.09** 0.12 -0.03
3 ARDL
-(0.03) -(0.07) -(0.03)
Overdrafts
0 -0.06 -0.06
3 ARDL
-(0.09) -(0.14) -(0.08)
Overdrafts- pre break
0.05 -0.01 -0.22
4 ARDL
-(0.21) -(0.25) -(0.20)
Overdrafts- post break
-0.05 -0.09 -0.02
3 ARDL
-(0.10) -(0.15) -(0.09)
Credit cards
-0.03 0.59 0.41
3 ARDL
-(0.25) -(0.30) -(0.22)
Credit cards - pre break
-0.07 0.53 0.46
2 ARDL
-(0.39) -(0.40) -(0.36)
Credit cards - post break
0.05 0.68 0.38
3 ARDL
-(0.32) -(0.42) -(0.30)
54
Non-financial corporations
loans
Immediate
impact
Long run
impact
Adjustment
speed
Lags
selected
Method
selected
Loans up to 30 mio CZK
0.01 0.45** 0.48**
2 ARDL
-(0.09) -(0.08) -(0.09)
Loans up to 30 mio CZK - pre
break
-0.04 0.74** 0.46**
3 ARDL
-(0.15) -(0.12) -(0.15)
Loans up to 30 mio CZK - post
break
0.14 0.39** 0.46**
3 ARDL
-(0.13) -(0.12) -(0.13)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation
-0.02 0.25 -0.28
3 ECM
-(0.13) -(0.17) -(0.08)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation- pre break
0.14 -0.03 -0.23
3 ECM
-(0.19) -(0.19) -(0.08)
Loans up to 30 mio CZK -
Floating rate and up to 1 year
rate fixation- post break
0.31 0.24** -0.27
3 ARDL
-(0.19) -(0.14) -(0.20)
Loans up to 30 mio CZK - Over
1 year rate fixation
0.19 0.36** 0.16
2 ARDL
-(0.13) -(0.12) -(0.12)
Loans up to 30 mio CZK -Over1
year rate fixation- pre break
0.09 0.52** 0.34
3 ARDL
-(0.18) -(0.10) -(0.14)
Loans up to 30 mio CZK -Over
1 year rate fixation- post break
0.19 0.13 -0.01
3 ARDL
-(0.19) -(0.24) -(0.20)
Loans over 30 mio CZK
0.11 0.7** 0.72**
3 ARDL
-(0.17) -(0.13) -(0.17)
Loans over 30 mio CZK - pre
break
-0.34 0.84** -0.21
3 ECM
-(0.34) -(0.11) -(0.34)
Loans over 30 mio CZK - post
break
-0.27 0.69** 1.13**
3 ARDL
-(0.34) -(0.27) -(0.34)
Overdrafts
0.17 0.45** 0.29**
3 ARDL
-(0.12) -(0.10) -(0.12)
Overdrafts- pre break
-0.18 0.32** -0.1**
2 ECM
-(0.15) -(0.05) -(0.15)
Overdrafts- post break
-0.16 0.3** 0.57**
4 ARDL
-(0.19) -(0.15) -(0.19)
55
Appendix G Rolling regression cost of funds approach
The beginning and end period of the rolling regression are labeled on the horizontal axis. Dotted
lines signify the 95% confidence interval. HH stands for households and NFC for non-
financial corporations.
-0,1
0
0,1
0,2
0,3
0,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overnight -HH
-2
-1,5
-1
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity up to 1 year -HH
-1,5
-1
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity over 1 year - HH
56
-0,1
0
0,1
0,2
0,3
0,4
0,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overnight -NFC
0
0,2
0,4
0,6
0,8
1
1,2
1,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Agreed maturity -NFC
-0,1
-0,05
0
0,05
0,1
0,15
0,2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice up to 3
months -HH
-0,3
-0,2
-0,1
0
0,1
0,2
0,3
0,4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice over 3 months
-HH
57
-0,4
-0,2
0
0,2
0,4
0,6
0,8
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Redeemable at notice -NFC
-3
-2
-1
0
1
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Consumer credit up to 1 year
-1,5
-1
-0,5
0
0,5
1
1,5
2
2,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Consumer credit over 1 year
-0,5
0
0,5
1
1,5
2
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Mortgages up to 1 year
-0,2
0
0,2
0,4
0,6
0,8
1
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Mortgages over 1 year
58
-1
-0,5
0
0,5
1
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overdrafts -HH
-1
0
1
2
3
4
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Credit cards
-1
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans up to 30 mio CZK up to 1 year
-0,5
0
0,5
1
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans up to 30 mio CZK over 1 year
0
0,25
0,5
0,75
1
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Overdrafts -NFC
-0,5
0
0,5
1
1,5
2004-
2008
2005-
2009
2006-
2010
2007-
2011
2008-
2012
2009-
2013
2010-
2014
Loans over 30 mio CZK