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A Less Effective Monetary Transmission In The Wake Of European Monetary Union (Emu)? Evidence From Lending Rates Pass-Through

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  • Gianluca Di Lorenzo
  • Giuseppe Marotta

Abstract

This paper proposes an approach to search for structural breaks in the wake of EMU, in retail lending rates pass-through. The results of the econometric investigation for Italy and Portugal show that the pass-through on short-term lending is, in contrast with a widely held view, sizeably lower in the post-break period, and well below unity. The recently proposed distinction between monetary policy and cost-of-funds approaches in the pass-through analysis does not yield different breaking points. These findings, which are based on results of cointegrated relations, supports the widely held view of the presence of an enhanced and less heterogeneous monetary transmission across countries. A strengthened relationship lending could atleast partly explain the reduced pass-through in the Italian case.

Suggested Citation

  • Gianluca Di Lorenzo & Giuseppe Marotta, 2006. "A Less Effective Monetary Transmission In The Wake Of European Monetary Union (Emu)? Evidence From Lending Rates Pass-Through," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(2), pages 6-31, May.
    • Handle: RePEc:icf:icfjmo:v:04:y:2006:i:2:p:6-31
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    Cited by:

    1. 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.
    2. 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".

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