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Interest rate pass-through in the EMU – New evidence from nonlinear cointegration techniques for fully harmonized data

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  • Belke, Ansgar
  • Beckmann, Joscha
  • Verheyen, Florian

Abstract

This study analyzes the interest rate pass-through (IRPT) from money market rates to various loan rates for up to 12 countries of the European Monetary Union (EMU) between 2003 and 2011 based on fully harmonized data. We first test for a cointegrating relationship between loan rates and the Euro OverNight Index Average (EONIA) and allow for different nonlinear patterns in the short-run adjustment of loan rates based on smooth transition models. Our results identify considerable differences in the size of the pass-through (PT) with respect to different loan rates or countries. In the majority of cases, the pass-through is incomplete, and the dynamics of loan adjustment are different for reductions and hikes in money market rates. A key finding is that the pass-through is more homogenous and more nearly complete for loans to non-financial corporations than to households.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 37 (2013)
Issue (Month): C ()
Pages: 1-24

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Handle: RePEc:eee:jimfin:v:37:y:2013:i:c:p:1-24

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Interest rate pass-through; EMU; Cointegration; ARDL bounds testing; Smooth transition models;

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Cited by:
  1. Ansgar Belke & Christian Dreger, 2013. "The Transmission of Oil and Food Prices to Consumer Prices – Evidence for the MENA Countries," Ruhr Economic Papers 0448, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Jérôme Creel & Paul Hubert & Mathilde Viennot, 2013. "Assessing the interest rate and bank lending channels of ECB monetary policies," Documents de Travail de l'OFCE 2013-25, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Tomas Adam & Oxana Babecka Kucharcukova & Jan Babecky & Jan Bruha & Tomas Holub & Eva Hromadkova & David Kocourek & Lubos Komarek & Zlatuse Komarkova & Kamila Kulhava & Petr Kral & Ivana Kubicova & Ji, 2013. "Analyses of the Czech Republic's Current Economic Alignment with the Euro Area 2013," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, number as13 edited by Jakub Mateju & Kamila Kulhava, August.
  4. Ivo Arnold & Saskia van Ewijk, 2014. "The impact of sovereign and credit risk on interest rate convergence in the euro area," DNB Working Papers 425, Netherlands Central Bank, Research Department.

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