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interest rate pass-through in the euro area

We investigate the pass-through of monetary policy to bank lending rates in the euro area during ... more We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks’ funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during ...

We investigate the pass-through of monetary policy to bank lending rates in the euro area during ... more We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks’ funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during ...

Wochenschau Sek. I+II, 2018

Journal of International Money and Finance, 2016

Research Question Has the interest rate pass-through, i.e. the transmission of monetary policy to... more Research Question Has the interest rate pass-through, i.e. the transmission of monetary policy to bank lending rates, in the euro area been different during the sovereign debt crisis compared to prior to the crisis? If yes, what are the reasons for these changes? What have the role of conventional monetary policy and of unconventional monetary policy been? Contribution The paper makes three main contributions to the interest rate pass-through literature. First, it uses a large-scale factor-augmented vector autoregressive model which accounts for spillovers between countries and markets. Second, it not only analyzes the pass-through of monetary policy to lending rates, but also to different stages of the pass-through process, such as sovereign risk, bank funding risk other than sovereign risk and banks' margins. Third, it assesses the role of both, conventional and unconventional monetary policy. Results While the aggregate effects, i.e. the pass-through of monetary policy to bank lending rates, do not seem to have changed with the sovereign debt crisis, the composition of the pass-through has changed. More specifically, easier monetary policy during the crisis period reduced sovereign risk in the euro-area periphery as well as longer-term bank funding risk (other than sovereign risk) in both core and peripheral economies. However, monetary policy was not able to reduce the markup over funding costs charged by banks. This was not, or not as much, the case prior to the crisis. Policies which aim at reducing credit supply constraints and borrower risk and at re-establishing competition in the banking sector could help repairing the pass-through to banks' margins. Unconventional monetary policy complemented conventional monetary policy and helped lowering lending rates. This was mainly driven by large unconventional monetary policy shocks, whereas the propagation of unconventional monetary policy has probably been weaker than the propagation of conventional monetary policy.

interest rate pass-through in the euro area

We investigate the pass-through of monetary policy to bank lending rates in the euro area during ... more We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks’ funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during ...

We investigate the pass-through of monetary policy to bank lending rates in the euro area during ... more We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks’ funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the IP has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during ...

Wochenschau Sek. I+II, 2018

Journal of International Money and Finance, 2016

Research Question Has the interest rate pass-through, i.e. the transmission of monetary policy to... more Research Question Has the interest rate pass-through, i.e. the transmission of monetary policy to bank lending rates, in the euro area been different during the sovereign debt crisis compared to prior to the crisis? If yes, what are the reasons for these changes? What have the role of conventional monetary policy and of unconventional monetary policy been? Contribution The paper makes three main contributions to the interest rate pass-through literature. First, it uses a large-scale factor-augmented vector autoregressive model which accounts for spillovers between countries and markets. Second, it not only analyzes the pass-through of monetary policy to lending rates, but also to different stages of the pass-through process, such as sovereign risk, bank funding risk other than sovereign risk and banks' margins. Third, it assesses the role of both, conventional and unconventional monetary policy. Results While the aggregate effects, i.e. the pass-through of monetary policy to bank lending rates, do not seem to have changed with the sovereign debt crisis, the composition of the pass-through has changed. More specifically, easier monetary policy during the crisis period reduced sovereign risk in the euro-area periphery as well as longer-term bank funding risk (other than sovereign risk) in both core and peripheral economies. However, monetary policy was not able to reduce the markup over funding costs charged by banks. This was not, or not as much, the case prior to the crisis. Policies which aim at reducing credit supply constraints and borrower risk and at re-establishing competition in the banking sector could help repairing the pass-through to banks' margins. Unconventional monetary policy complemented conventional monetary policy and helped lowering lending rates. This was mainly driven by large unconventional monetary policy shocks, whereas the propagation of unconventional monetary policy has probably been weaker than the propagation of conventional monetary policy.