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The real effects of monetary policy transmission via the floating-rate channel

Author

Listed:
  • Margherita Bottero

    (Bank of Italy)

  • Michele Cascarano

    (Bank of Italy)

  • Alessandro Modica

    (Bank of Italy)

  • Federico Maria Signoretti

    (Bank of Italy)

Abstract

In this paper we quantify the transmission of the 2022-23 tightening cycle to euro-area firms through the floating-rate channel, that is, via their heterogeneous exposure to the repricing of outstanding bank debt. As firms' exposure to floating-rate loans is not exogenous, we instrument it with the random exposure of their lenders to the inflow of retail deposits ensuing from the ECB's Asset Purchase Programme, which affected intermediaries' propensity to lend at floating rates. According to our estimates, an increase of 450 basis points in the 3-month Euribor rate (as observed in 2022-23) would have reduced the investment rate of companies with a high share of floating-rate debt (in or above the 75th percentile) by 14.8 percentage points more than for those with fixed-rate debt only. This effect compares with an average investment rate in the sample of 14 per cent.

Suggested Citation

  • Margherita Bottero & Michele Cascarano & Alessandro Modica & Federico Maria Signoretti, 2026. "The real effects of monetary policy transmission via the floating-rate channel," Temi di discussione (Economic working papers) 1536, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1536_26
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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