Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union
Southern African Development Community (SADC) and East African Community (EAC) countries are exploring the feasibility of establishing a monetary union. This study assesses the economic integration in the two blocs, using the interest rate pass‑through mechanism to determine the convergence of inter...
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| Format: | Article |
| Language: | English |
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Lodz University Press
2024-12-01
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| Series: | Comparative Economic Research |
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| Online Access: | https://czasopisma.uni.lodz.pl/CER/article/view/24391 |
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| author | Damilola Oyetade Ephrem Habtemichael Redda Paul‑Francois Muzindutsi |
| author_facet | Damilola Oyetade Ephrem Habtemichael Redda Paul‑Francois Muzindutsi |
| author_sort | Damilola Oyetade |
| collection | DOAJ |
| description | Southern African Development Community (SADC) and East African Community (EAC) countries are exploring the feasibility of establishing a monetary union. This study assesses the economic integration in the two blocs, using the interest rate pass‑through mechanism to determine the convergence of interest rates in the two regions. This study evaluates the potential for forming a monetary union using the panel autoregressive distributive lag model (PARDL) with monthly data from January 2000 to December 2022, including central bank and retail bank interest rates. The dynamic common correlated effects (DCCE) results suggest that the complete interest pass‑through to retail bank rates does not hold for the two blocs. Secondly, there are varying speeds of adjustment for banking rates in response to changes in policy rates. In addition, the incomplete interest‑rate pass‑through for the two blocs indicates the presence of banking market imperfections, weak banking asset quality, and information asymmetries, which are more pronounced in the EAC. Monetary policymakers should implement measures to enhance the efficiency and competitiveness of their financial systems to minimise these imperfections. |
| format | Article |
| id | doaj-art-0446102b359c4afdb5ddcd52ae165308 |
| institution | Kabale University |
| issn | 1508-2008 2082-6737 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Lodz University Press |
| record_format | Article |
| series | Comparative Economic Research |
| spelling | doaj-art-0446102b359c4afdb5ddcd52ae1653082025-01-17T07:26:56ZengLodz University PressComparative Economic Research1508-20082082-67372024-12-0127413515010.18778/1508-2008.27.3424879Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary UnionDamilola Oyetade0https://orcid.org/0000-0003-0120-5385Ephrem Habtemichael Redda1https://orcid.org/0000-0002-0233-1968Paul‑Francois Muzindutsi2https://orcid.org/0000-0002-4819-8218University of KwaZulu‑Natal, School of Accounting, Economics and Finance, Durban, South AfricaNorth‑West University, Faculty of Economic & Management SciencesUniversity of KwaZulu‑Natal, School of Accounting, Economics and FinanceSouthern African Development Community (SADC) and East African Community (EAC) countries are exploring the feasibility of establishing a monetary union. This study assesses the economic integration in the two blocs, using the interest rate pass‑through mechanism to determine the convergence of interest rates in the two regions. This study evaluates the potential for forming a monetary union using the panel autoregressive distributive lag model (PARDL) with monthly data from January 2000 to December 2022, including central bank and retail bank interest rates. The dynamic common correlated effects (DCCE) results suggest that the complete interest pass‑through to retail bank rates does not hold for the two blocs. Secondly, there are varying speeds of adjustment for banking rates in response to changes in policy rates. In addition, the incomplete interest‑rate pass‑through for the two blocs indicates the presence of banking market imperfections, weak banking asset quality, and information asymmetries, which are more pronounced in the EAC. Monetary policymakers should implement measures to enhance the efficiency and competitiveness of their financial systems to minimise these imperfections.https://czasopisma.uni.lodz.pl/CER/article/view/24391interest rate pass‑throughfinancial integrationmonetary unionsadceac |
| spellingShingle | Damilola Oyetade Ephrem Habtemichael Redda Paul‑Francois Muzindutsi Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union Comparative Economic Research interest rate pass‑through financial integration monetary union sadc eac |
| title | Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union |
| title_full | Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union |
| title_fullStr | Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union |
| title_full_unstemmed | Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union |
| title_short | Interest Rate Pass‑through and Monetary Policy Transmission in SADC and EAC Countries: Implications for Monetary Union |
| title_sort | interest rate pass through and monetary policy transmission in sadc and eac countries implications for monetary union |
| topic | interest rate pass‑through financial integration monetary union sadc eac |
| url | https://czasopisma.uni.lodz.pl/CER/article/view/24391 |
| work_keys_str_mv | AT damilolaoyetade interestratepassthroughandmonetarypolicytransmissioninsadcandeaccountriesimplicationsformonetaryunion AT ephremhabtemichaelredda interestratepassthroughandmonetarypolicytransmissioninsadcandeaccountriesimplicationsformonetaryunion AT paulfrancoismuzindutsi interestratepassthroughandmonetarypolicytransmissioninsadcandeaccountriesimplicationsformonetaryunion |