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Bank lending standards and monetary transmission in the euro area

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  • Gründler, Daniel
  • Scharler, Johann

Abstract

This paper analyzes the role of banks in the transmission of monetary policy shocks in the euro area using a FAVAR model and survey data from the ECB’s Bank Lending Survey. We find that banks primarily respond to a contractionary policy shock by tightening lending standards rather than adjusting lending rates. Lending standards react more heterogeneously than market yields, while perceived loan demand varies even more across countries. These findings highlight the importance of both credit supply and demand in the heterogeneous transmission of monetary policy.

Suggested Citation

  • Gründler, Daniel & Scharler, Johann, 2025. "Bank lending standards and monetary transmission in the euro area," Economics Letters, Elsevier, vol. 254(C).
    • Handle: RePEc:eee:ecolet:v:254:y:2025:i:c:s0165176525002502
    DOI: 10.1016/j.econlet.2025.112413
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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