Term structure and the sluggishness of retail bank interest rates in euro area countries

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Term structure and the sluggishness of retail bank interest rates in euro area countries

Author Info

Gabe de Bondt () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Benoit Mojon () (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
Natacha Valla () (Banque de France, B.P. 140-01, 75049 Paris Cedex 01, France.)

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Abstract

This paper analyses the pricing of bank loans and deposits in euro area countries. We show that retail bank interest rates adjust not only to changes in short-term interest rates but also to long-term interest rates. This result, which is arguably intuitive for long-term retail bank rates, is also confirmed for bank interest rates on short-term instruments. The transmission of changes in short-term market interest rates along the yield curve is found to be a key factor explaining the sluggishness of retail bank interest rates. We also show that in the cases where we cannot reject that the adjustment of retail rates has changed since the introduction of the euro, this adjustment has become faster.

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Paper provided by European Central Bank in its series Working Paper Series with number 518.

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Length: 47 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:ecb:ecbwps:20050518

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Find related papers by JEL classification:
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-EEC-2005-10-04 (European Economics)
NEP-FIN-2005-10-04 (Finance)
NEP-FMK-2005-10-04 (Financial Markets)
NEP-MAC-2005-10-04 (Macroeconomics)
NEP-MON-2005-10-04 (Monetary Economics)

References listed on IDEAS
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Ignazio Angeloni & Michael Ehrmann, 2003. "Monetary transmission in the euro area: early evidence," Economic Policy, CEPR, CES, MSH, vol. 18(37), pages 469-501, October. [Downloadable!] (restricted)
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Other versions:
- Alessandro Calza & Christine Gartner & Joao Sousa, 2001. "Modelling the demand for loans to the private sector in the Euro area," Working Paper Series 055, European Central Bank. [Downloadable!]
Gabe de Bondt, 2004. "The balance sheet channel of monetary policy: first empirical evidence for the euro area corporate bond market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(3), pages 219-228. [Downloadable!]
J.A. Bikker, 1999. "Efficiency in the European banking industry: an exploratory analysis to rank countries," Research Series Supervision (discontinued) 18, Netherlands Central Bank, Directorate Supervision. [Downloadable!]
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Other versions:
- Reint Gropp & Sandrine Corvoisier, 2001. "Bank concentration and retail interest rates," Working Paper Series 072, European Central Bank. [Downloadable!]
Alessandro Calza & Joao Sousa & Marta Manrique Simon, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 202, European Central Bank. [Downloadable!]
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Full references

Cited by:
(explanations, 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.)

Chmielewski, Tomasz, 2003. "Interest rate pass-through in the Polish banking sector and bank-specific financial disturbances," MPRA Paper 5133, University Library of Munich, Germany, revised 31 Jan 2004. [Downloadable!]
Giuseppe Marotta, 2008. "Structural breaks in the lending interest rate pass-through and the euro," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 08031, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi". [Downloadable!]
Other versions:
- Marotta, Giuseppe, 2009. "Structural breaks in the lending interest rate pass-through and the euro," Economic Modelling, Elsevier, vol. 26(1), pages 191-205, January. [Downloadable!] (restricted)
Giuseppe Marotta, 2006. "Structural breaks in the interest rate pass-through and the euro. A cross-country study in the euro area and the UK," Heterogeneity and monetary policy 0612, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
Other versions:
- Giuseppe Marotta, 2006. "Structural breaks in the interest rate pass-through and the euro. A cross-country study in the euro area and the UK," Department of Economics 0549, University of Modena and Reggio E., Faculty of Economics "Marco Biagi". [Downloadable!]
Burkhard Raunig & Johann Scharler, 2007. "Money market uncertainty and retail interest rate fluctuations: A cross-country comparison," Economics working papers 2007-04, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
Other versions:
- Burkhard Raunig & Johann Scharler, 2009. "Money Market Uncertainty and Retail Interest Rate Fluctuations: A Cross-Country Comparison," German Economic Review, Blackwell Publishing, vol. 10, pages 176-192, 05. [Downloadable!] (restricted)
André Minella & Nelson F. Souza-Sobrinho, 2009. "Monetary Channels in Brazil through the Lens of a Semi-Structural Model," Working Papers Series 181, Central Bank of Brazil, Research Department. [Downloadable!]
Gianluca Di Lorenzo & Giuseppe Marotta, 2006. "Multiple breaks in lending rate pass-through A cross country study for the euro area," Heterogeneity and monetary policy 0602, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
Other versions:
- Gianluca Di Lorenzo & Giuseppe Marotta, 2006. "Multiple breaks in lending rate pass-through A cross country study for the euro area," Department of Economics 0524, University of Modena and Reggio E., Faculty of Economics "Marco Biagi". [Downloadable!]
Johann Burgstaller, 2005. "Interest rate pass-through estimates from vector autoregressive models," Economics working papers 2005-10, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
Gianluca Di Lorenzo & Giuseppe Marotta, 2005. "A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through," Heterogeneity and monetary policy 0503, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica. [Downloadable!]
Other versions:
- Gianluca Di Lorenzo & Giuseppe Marotta, 2005. "A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through," Department of Economics 0482, University of Modena and Reggio E., Faculty of Economics "Marco Biagi". [Downloadable!]
Teruyoshi Kobayashi, 2008. "Incomplete Interest Rate Pass-Through and Optimal Monetary Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 77-118, September. [Downloadable!]

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