Interest rate pass-through and monetary policy asymmetry: a journey into the caucasian black box

This paper analyses the interest rate pass-through for five economies of the Caucasus - Armenia, Azerbaijan, Georgia, Kazakhstan, and Russia. Employing an autoregressive distributed lag (ARDL) specification to monthly data, we find that the interest rate pass-through is systematically incomplete and sluggish, probably due to macroeconomic instability and a low degree of competition in the banking sector. It is not clear whether pass-through has improved over time and asymmetric adjustment is found to characterize the pass-through only occasionally. Overall, our results show a considerable degree of cross-country heterogeneity in the pass-through.