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The Interest Rate Pass-Through in the Euro Area During the Global Financial Crisis

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  • Nikolay Hristov

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  • Oliver Hülsewig
  • Timo Wollmershäuser

Abstract

This paper uses panel vector autoregressive models and simulations of an estimated DSGE model to explore the reaction of Euro–area banks to the global financial crisis. We focus on their interest–rate setting behavior in response to standard macroeconomic shocks. Our main empirical finding is that the pass–through from changes in the money market rate to retail bank rates became significantly less complete during the crisis. Model simulations show that this result can be well explained by a significant increase in the frictions that the banks’ business is subject to.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-10/cesifo1_wp3964.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3964.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3964

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Keywords: Euro Area; global financial crisis; interest rate pass-through; panel vector autoregressive model; sign restrictions; structural break; DSGE model;

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  7. Sinn, Hans-Werner, 2010. "Casino Capitalism: How the Financial Crisis Came About and What Needs to be Done Now," OUP Catalogue, Oxford University Press, number 9780199588275, September.
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  14. Thomas Helbling & M. Ayhan Kose & Christopher Otrok & Raju Huidrom, 2010. "Do Credit Shocks Matter? A Global Perspective," IMF Working Papers 10/261, International Monetary Fund.
  15. Nikolay Hristov & Oliver Hülsewig & Timo Wollmershäuser, 2011. "Loan Supply Shocks during the Financial Crisis: Evidence for the Euro Area," CESifo Working Paper Series 3395, CESifo Group Munich.
  16. Gianni De Nicolò & Marcella Lucchetta, 2011. "Systemic Risks and the Macroeconomy," NBER Working Papers 16998, National Bureau of Economic Research, Inc.
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Cited by:
  1. Nikolay Hristov & Oliver Hülsewig & Thomas Siemsen & Timo Wollmershäuser, 2014. "Smells Like Fiscal Policy? Assessing the Potential Effectiveness of the ECB's OMT Program," CESifo Working Paper Series 4628, CESifo Group Munich.

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