Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 954: The Macroeconomic Determinants of the Pass-Through from the Market Interest Rate to the Bank Lending Rate in Mozambique

Agostinho Machava ()
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Agostinho Machava: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden

Abstract: This paper employs a linear regression with interaction terms, impulse response functions, and analysis of multiplier effects to identify the macroeconomic determinants of the market-to-bank interest rate pass-through in Mozambique. This paper also looks at how these macroeconomic fundamentals affect the interest rate pass-through mechanism. The study finds incomplete market-to-bank interest rate pass-through and shows that it takes approximately five months for the money market rate to be fully transmitted to the bank lending rate. There is evidence indicating the existence of asymmetry in the interest rate transmission mechanism, and the empirical findings also highlight that GDP growth and inflation are the most important macroeconomic variables influencing the degree of the interest rate pass-through in both the short and long run.

Keywords: Mozambique; cointegration; interaction terms; asymmetry; interest rate pass-through; money market rate; bank lending rate

JEL-codes: E43; E44; G21

40 pages, December 18, 2017

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