Monetary policy and the flow of funds in the euro area
AbstractThis paper provides new evidence on the transmission of monetary policy in the euro area, assessing the impact of an unexpected increase of the short-term interest rates on the lending and borrowing activity in different economic sectors. We exploit the information content of the flow-of-funds statistics, providing the best framework to analyse the flow of funds from lenders to borrowers. After estimating a small VAR for the euro area, we extend the benchmark model with the flow-of-funds series, analysing the response of these variables to a contractionary monetary policy shock. We find that the policy tightening is followed by a worsening of the budget deficit, firms cut down on their demand for bank loans, partially replacing them with inter-company loans, and draw on their liquidity to try to offset the fall in revenue associated with the slowdown in economic activity, while households increase precautionary saving in the short run. Consistent with the bank lending channel of monetary policy, the interest rate hike is followed by a short-run deceleration in credit growth, mainly driven by the response of banks.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 861.
Date of creation: Mar 2012
Date of revision:
euro area; monetary policy; flow of funds; credit growth.;
Other versions of this item:
- Riccardo Bonci, 2011. "Monetary policy and the flow of funds in the Euro Area," Working Paper Series 1402, European Central Bank.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-08 (All new papers)
- NEP-CBA-2012-05-08 (Central Banking)
- NEP-EEC-2012-05-08 (European Economics)
- NEP-MAC-2012-05-08 (Macroeconomics)
- NEP-MON-2012-05-08 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael Ehrmann, 2004.
"Firm Size and Monetary Policy Transmission – Evidence from German Business Survey Data,"
CESifo Working Paper Series
1201, CESifo Group Munich.
- Ehrmann, M., 2000. "Firm Size and Monetary Policy Transmission - Evidence from German Business Survey Data," Economics Working Papers eco2000/12, European University Institute.
- Michael Ehrmann, 2000. "Firm size and monetary policy transmission: evidence from German business survey data," Working Paper Series 21, European Central Bank.
- Eric M. Leeper & David B. Gordon, 1991.
"In search of the liquidity effect,"
International Finance Discussion Papers
403, Board of Governors of the Federal Reserve System (U.S.).
- Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2010.
"Business Cycles in the Euro Area,"
in: Europe and the Euro, pages 141-167
National Bureau of Economic Research, Inc.
- Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2009. "Business Cycles in the Euro Area," CEPR Discussion Papers 7124, C.E.P.R. Discussion Papers.
- Domenico Giannone & Michèle Lenza & Lucrezia Reichlin, 2008. "Business Cycles in the euro Area," Working Papers ECARES 2008_040, ULB -- Universite Libre de Bruxelles.
- Domenico Giannone & Michele Lenza & Lucrezia Reichlin, 2008. "Business Cycles in the Euro Area," NBER Working Papers 14529, National Bureau of Economic Research, Inc.
- R. Bonci & F. Columba, 2008.
"Monetary policy effects: new evidence from the Italian flow-of-funds,"
Taylor and Francis Journals, vol. 40(21), pages 2803-2818.
- Riccardo Bonci & Francesco Columba, 2008. "Monetary Policy Effects: New Evidence from the Italian Flow of Funds," Temi di discussione (Economic working papers) 678, Bank of Italy, Economic Research and International Relations Area.
- Isabel Marques Gameiro & João Sousa, 2010. "Monetary Policy Effects: Evidence from the Portuguese Flow of Funds," Working Papers w201014, Banco de Portugal, Economics and Research Department.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.