Mending the broken link: Heterogeneous bank lending rates and monetary policy pass-through

By Carlo Altavilla, Fabio Canova, Matteo Ciccarelli. Journal of Monetary Economics, 2020

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We analyse the pass-through of monetary policy measures to lending rates to firms and households in the euro area using a unique bank-level dataset. Banks' characteristics such as the capital ratio and the exposure to sovereign debt are responsible for the heterogeneity of pass-through of conventional monetary policy changes. The location of a bank is instead irrelevant. Non-standard measures normalized the capacity of banks to grant loans resulting in a significant compression in lending rates. Banks with a high level of non-performing loans and a low capital ratio were the most responsive to the measures. Finally, we quantify the effects of non-standard policies on the real economic activity using a standard macroeconomic model and find that in absence of these measures both inflation and output gap would have been significantly lower.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/007710ccefb8b1572d41edf27701e90a2d5ef571

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Citations in the corpus

A Tale of Two Decades: The Ecb's Monetary Policy at 20 (2019, methodology): “…surrounding the blue dashed line arises from the green density by shifting up its percentiles as indicated by the forward guidance impact estimated by the regression of percentiles on a forward guidance factor extracted from the term structure of interest rates following Altavilla et al. (2019).”