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Bank Lending Rate Pass-Through and Differences in the Transmission of a Single EMU Monetary Policy

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  • Marie Donnay
  • Hans Degryse

Abstract

The pass-through from the money market rate to several bank lending rates and the government bond rate is investigated for 12 European countries over the period 1980-2000, by applying a SVAR based on the Cholesky decomposition. Simulations of a one percent point rise in the money market rate, performed for all countries, reveal divergences within and between countries in the dynamics of the lending rate pass-through. Subsequently, this pass-through is introduced in an enlarged SVAR model to account for the intermediation role of banks in the transission process of monetary policy to the real economy, for 7 European countries. The simulation results indicate a significant role for the banking sector. Moreover some asymmetries in the price of credit both within and across countries in Europe exist. The different effects on the real economy (private consumption and investment) depend on the magnitude of the lending rate pass-through.

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0117.

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Date of creation: Mar 2001
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Handle: RePEc:ete:ceswps:ces0117

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Keywords: Transmission of monetary policy; EMU; Bank intermediation; Lending rates; Pass-through; SVAR; Impulse response analysis;

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Cited by:
  1. 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".
  2. 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.
  3. de Bondt, Gabe & Mojon, Benoît & Valla, Natacha, 2005. "Term structure and the sluggishness of retail bank interest rates in euro area countries," Working Paper Series 0518, European Central Bank.
  4. Jesús Crespo-Cuaresma & Balázs Égert & Thomas Reininger, 2004. "Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland," William Davidson Institute Working Papers Series 2004-671, William Davidson Institute at the University of Michigan.
  5. 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.
  6. 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.
  7. 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.
  8. Johann Burgstaller, 2003. "Interest Rate Transmission to Commercial Credit Rates in Austria," Economics working papers 2003-06, Department of Economics, Johannes Kepler University Linz, Austria.
  9. Heinemann, Friedrich & Schüler, Martin, 2002. "Integration benefits on EU retail credit markets: evidence from interest rate pass-through," ZEW Discussion Papers 02-26, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. de Bondt, Gabe, 2002. "Retail bank interest rate pass-through: new evidence at the euro area level," Working Paper Series 0136, European Central Bank.
  11. Kok, Christoffer & Werner, Thomas, 2006. "Bank interest rate pass-through in the euro area: a cross country comparison," Working Paper Series 0580, European Central Bank.

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