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Peering beyond the veil: A dissection of aggregate bank lending rate movements into pricing and composition effects using credit-level data

Author

Listed:
  • Reimers, Paul
  • Michaelis, Henrike

Abstract

Compared to 2021, the aggregate bank lending rate to firms in the euro area in- creased strongly during the monetary tightening and easing cycle of 2022-25. However, it rose up to 1.5 percentage points less than the rise in policy and money market rates. We approach this gap using granular credit registry data, revealing how changes in the composition and pricing of credit translate into developments of the aggregate rate. The tool we use is standard in labor economics, but scarcely used outside that context: the Oaxaca-Blinder decomposition. We are the first to apply it to analyze the development of an aggregate variable over time in the loan pricing literature. We find that changes in the pricing of credit compared to 2021 were the main reason why a gap opened up. Compositional shifts in firm and credit characteristics and changes in banks' market shares had minor effects. Our micro-level insights have implications for policy makers, bankers and debtors, as they help understand what shapes aggregate pass-through patterns and the strength of monetary policy transmission. Moreover, our approach opens up promising new applications in the loan supply literature.

Suggested Citation

  • Reimers, Paul & Michaelis, Henrike, 2025. "Peering beyond the veil: A dissection of aggregate bank lending rate movements into pricing and composition effects using credit-level data," Discussion Papers 36/2025, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:334533
    DOI: 10.71734/DP-2025-36
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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
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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