eng 2025 Keywords: monetary policy, interest rate pass-through, bank interest rates, error correction mechanism, autoregressive distributed lag model THE EFFICIENCY AND SPECIFICS OF INTEREST RATE PASS-THROUGH IN THE MONETARY POLICY TRANSMISSION MECHANISM IN EMERGING ECONOMY info:eu-repo/semantics/article Economic themes volume: 63 number: 2 startpage: 241 endpage: 258 Lukić, Velimir Tripković, Aleksandra Abstract: In emerging economies banks play a pivotal role in the financial system. The interest rate channel plays a primary role in the economies that adopted the inflation targeting strategy of monetary policy. The causal relationship among interest rates, key policy rate – market interest rates – bank retail interest rates, is at the core of the transmission of monetary policy impulses from the central bank’s move to the economy. The results discussed in the paper show a strong pass-through from the key policy rate to the 3- month BELIBOR rate. The speed of adjustment is rapid and pass-through complete. The bank lending rates are less prompt in their immediate response to the underlying change in the key policy rate, but the final long-run outcome is adequate since there is a complete pass-through. The opposite case is observed when examining bank deposit interest rates that show either discord with long-run developments in the money market rates, i.e. absence of longrun relationship, or low degree of statistical significance (10%) of pass-through with prominent sluggishness. A finding arise that interest rate pass-through in Serbia is characterized by a dichotomy in two sub channels of bank passthrough – lending and deposits. Lending sub channel works properly and spreads the stance of monetary policy adequately onto the borrowers, while deposits sub channel does not provide enough incentives for savers to change their behavior which dampens efficacy of monetary policy transmission mechanism. All rights reserved https://phaidrabg.bg.ac.rs/o:38265 doi:10.2478/ethemes-2025-0014 ISSN: 0353-8648 application/pdf 565973 bytes