Monetary policy transmission in different credit markets

The paper examines the intermediate stage of monetary policy transmission by analysing how credit growth responds to interest rate changes. It studies the markets for mortgages, consumer credit, and corporate loans separately, and pays special attention to periods when the short-term interest rate was very low. It uses quarterly country-level data from 2005Q1 to 2022Q4 for 15 euro area countries and applies standard panel-data estimation techniques. The results indicate that credit markets respond to changes in monetary policy in the expected way. While the magnitude of the reaction varies across credit markets, there are no discernible differences between the reactions of different subgroups in the sample. The hypothesis that monetary policy might be less effective when interest rates are very low is not supported by the empirical evidence. Rather the opposite, the paper finds that when Euribor is very low, credit markets become more responsive to changes in interest rates. This holds true primarily in the market for corporate loans and to some extent in the market for mortgages.