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Structural Factor Analysis of Interest Rate Pass Through in Four Large Euro Area Economies

Author

Listed:
  • Anindya Banerjee

    () (University of Birmingham)

  • Victor Bystrov

    () (University of Lodz)

  • Paul Mizen

    () (University of Nottingham)

Abstract

In this paper we examine the influence of monetary policy at the ECB on mortgage and business lending rates offered by banks in the major euro area countries (Germany, France, Italy and Spain). Since there are many different policy measures that have been undertaken, we utilise a dynamic factor model, which allows examination of impulse responses to policy shocks conditioned by structurally identified latent factors. The distinct feature of this paper is that it explores the effects of three channels of policy transmission - short-term rates, long-term rates and perceived risk - ultimately directed towards bank lending rates. The analysis of the pass through is carried out in pre-crisis and post-crisis sub-samples after the financial crisis to demonstrate the changing influence of different policy measures on lending rates.

Suggested Citation

  • Anindya Banerjee & Victor Bystrov & Paul Mizen, 2019. "Structural Factor Analysis of Interest Rate Pass Through in Four Large Euro Area Economies," Lodz Economics Working Papers 1/2019, University of Lodz, Faculty of Economics and Sociology.
  • Handle: RePEc:ann:wpaper:1/2019
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    File URL: http://hdl.handle.net/11089/28236
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; dynamic factor models; interest rates; pass through;

    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
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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