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The drop in non-financial firms cost of credit: a cross-country analysis

Author

Listed:
  • Paolo Finaldi Russo

    (Bank of Italy)

  • Fabio Parlapiano

    (Bank of Italy)

Abstract

Following the sovereign debt crisis, bank interest rates charged to non-financial firms declined sharply in the euro area. This work explores the firms� balance-sheet channel hypothesis on the role played by firms� characteristics and risk profile in the transmission of monetary policy. Using a European firm-level survey, we find that in all countries changes in borrowers� characteristics played a non-negligible role. They account for 30 out of 267 basis points of the total interest rate drop in Italy, 36 out of 160 basis points in core European countries and less than 20 out of 306 basis points in other vulnerable economies. The key firm characteristic driving the decline in interest rates in Italy and in other vulnerable countries is the improvement in the financial situation of non-financial firms, whereas in core countries the decline is mainly due to a shift in bank credit towards relatively older and larger borrowers.

Suggested Citation

  • Paolo Finaldi Russo & Fabio Parlapiano, 2018. "The drop in non-financial firms cost of credit: a cross-country analysis," Questioni di Economia e Finanza (Occasional Papers) 426, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_426_18
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    References listed on IDEAS

    as
    1. Ashcraft, Adam B. & Campello, Murillo, 2007. "Firm balance sheets and monetary policy transmission," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1515-1528, September.
    2. Berndt, Antje & Obreja, Iulian, 2007. "The pricing of risk in European credit and corporate bond markets," Working Paper Series 805, European Central Bank.
    3. Aysun, Uluc & Hepp, Ralf, 2013. "Identifying the balance sheet and the lending channels of monetary transmission: A loan-level analysis," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2812-2822.
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    More about this item

    Keywords

    interest rates; SAFE; financial constraints; credit rationing;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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