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Financial Structure and its Impact on the Convergence of Interest Rate Pass-through in Europe. A Time-varying Interest Rate Pass-through Model

  • Schwarzbauer, Wolfgang

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)

So far studies concerned with the interest pass-through of monetary policy have not taken into account one central issue that arose in Europe in the late 1990s: the importance of financial structure for the convergence of monetary transmission. This study addresses this shortcoming. We estimate a time varying interest pass-through allowing us to test for the importance of financial structure and its impact on the convergence of the effects of monetary policy. We find convergence in banks' reaction to money market movements, which is additionally reduced in groups of countries with similar financial structure. Furthermore, there is a significant impact of financial structure on the extent of transmission of monetary policy impulses within the same month. Thus, differences in financial structure between countries must not be ignored when considering convergence of monetary transmission in Europe.

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File URL: http://www.ihs.ac.at/publications/eco/es-191.pdf
File Function: First version, 2006
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 191.

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Length: 35 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:ihs:ihsesp:191
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Order Information: Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria

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  1. Philipp Hartmann & Angela Maddaloni & Simone Manganelli, 2003. "The Euro-area Financial System: Structure, Integration, and Policy Initiatives," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 180-213.
  2. Fratzscher, Marcel, 2002. "Financial Market Integration in Europe: On the Effects of EMU on Stock Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(3), pages 165-93, July.
  3. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  4. Mojon, Benoît, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 0040, European Central Bank.
  5. Stephen G. Cecchetti, 1999. "Legal Structure, Financial Structure, and the Monetary Policy Transmission Mechanism," NBER Working Papers 7151, National Bureau of Economic Research, Inc.
  6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  7. Linda A. Toolsema & Jan-Egbert Sturm & Jakob de Haan, 2001. "Convergence of Monetary Transmission in EMU New Evidence," CESifo Working Paper Series 465, CESifo Group Munich.
  8. Michael Ehrmann & Leonardo Gambacorta & Jorge Martinez-PagÈs & Patrick Sevestre & Andreas Worms, 2003. "The Effects of Monetary Policy in the Euro Area," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 58-72.
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