The Impact of Money Market Interest Rates on Retail Interest Rates

Abstract

In this paper, we study the impact of monetary policy shock (the shock of money market rates) on interest rates on loans to non-fi- nancial organizations in the period from February 2003 to March 2015. Due to the structural changes in the Russian economy, including the shift to inflation targeting, standard linear models may not find a link even if it exists. To test the significance we use a set of different models (i.e.assumptions about data generation process) starting with estimates using VAR models and gradually complicating the structure. We show that all models demonstrate significant, but numerically different responses. The maximum effect obtained with the TVP-FAVAR model is estimated at 1.1–1.2 for short-term rates and 0.6–0.7 for long-term rates.