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The pass through of monetary policy to euro area bank interest rates

Author

Listed:
  • Kyriaki G. LouKa

    (Central Bank of Cyprus)

  • Nektarios A. Michail

    (Central Bank of Cyprus)

Abstract

We examine the transmission of monetary policy to bank interest rates in the euro area, using rolling 10-year samples. The results suggest that the pass through of policy rates to bank interest rates was relatively stable prior to the use of unconventional monetary policy measures, in which case the multiplier increased, especially for housing and short-term NFCs loans. It appears that Quantitative Easing (QE) operations allow for bank lending rates to further decline, however, this could lead to higher lending in those particular loan categories, with certain repercussions to the economy. In addition to the excess liquidity created by asset purchases, other factors such as credit risk and house price growth also appear to impact the pass through.

Suggested Citation

  • Kyriaki G. LouKa & Nektarios A. Michail, 2023. "The pass through of monetary policy to euro area bank interest rates," Working Papers 2023-2, Central Bank of Cyprus.
    • Handle: RePEc:cyb:wpaper:2023-2
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    References listed on IDEAS

    as
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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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