Equilibrium intrest rate based on utility preferences: The case of Kosovo financial system

Abstract

There is a broad perception that interest rates in the Kosovo banking industry do not reflect underlying settings of the economy. The paper aims to find out the tendency of the interest rate equilibrium in the Kosovo financial system. The paper captures interest rate equilibrium standing on the risk preferences of the Kosovo inhabitants. Interaction of financial institutions such as: Kosovo Pension Fund, banks, Kosovo treasury, non-financial institutions, Kosovo companies and all other economic agents realizing monetary transactions allow functionalization on the bond market. The bond market is inexistent in Kosovo; all the equilibrium outcomes are based on presumption that economic agents are driven from their rational instinct. Based on the questioners conducted with 230 respondents within the Kosovo territory, Kosovo inhabitants are risk averse on their nature. In addition, most of the respondents declared that they are not satisfied with the interest rates in the banking industry. Standing on the questioner's outcomes, equilibrium in the Kosovo financial system would be reached at the level of 5.49%.