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Retail bank interest rate pass-through: new evidence at the euro area level

  • de Bondt, Gabe
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    This paper presents an error-correction model of the interest rate pass-through process based on a marginal cost pricing framework including switching and asymmetric information costs. Estimation results for the euro area suggest that the proportion of the pass-through of changes in market interest rates to bank deposit and lending rates within one month is at its highest around 50%. The interest rate pass-through is higher in the long term and notably for bank lending rates close to 100%. Moreover, a cointegration relation exists between retail bank and comparable market interest rates. Robustness checks, consisting of impulse responses based on VAR models and results for a sub-sample starting in January 1999, show qualitatively similar findings. However, the sub-sample results are supportive of a quicker pass-through process since the introduction of the euro. JEL Classification: E43, G21

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    File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp136.pdf
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    Paper provided by European Central Bank in its series Working Paper Series with number 0136.

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    Date of creation: Apr 2002
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    Handle: RePEc:ecb:ecbwps:20020136
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    13. Marie Donnay & Hans Degryse, 2001. "Bank Lending Rate Pass-Through and Differences in the Transmission of a Single EMU Monetary Policy," Center for Economic Studies - Discussion papers ces0117, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
    14. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
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