New evidence of heterogeneous bank interest rate pass-through in the euro area
AbstractWe analyse the bank interest rate pass-through in the euro area for the period 1999:1–2009:11, relating market interest rates to bank retail rates of comparable maturities. We first estimate single equation error correction models for seven interest rate categories and ten euro area countries and find that the interest rate pass-through displays substantial heterogeneity especially in the short run, but also in the long run. We then apply the pooled mean group estimator (PMGE) advanced by Pesaran et al. (1999), allowing for country-specific interest rate pass-through in the short run, while constraining the long-run pass-through to be homogeneous across countries. We find significant evidence of substantial heterogeneity in the short-run pass-through. Finally, we conduct sub-sample analysis and conclude that the degree of heterogeneity and the overall efficiency of the interest rate pass-through have not improved in the second half of the period since the founding of the European Monetary Union.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 35 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Interest rate pass-through; European Monetary Union; European financial integration; Cointegration analysis; Panel data analysis;
Other versions of this item:
- Dominik Bernhofer & Till van Treeck, 2011. "New evidence of heterogeneous bank interest rate pass-through in the euro area," IMK Working Paper 12-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
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