Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154283
Authors: 
Holton, Sarah
Rodriguez d'Acri, Costanza
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1850
Abstract: 
The financial crisis has been characterised by fragmentation in the transmission of monetary policy, reflected in high dispersion in the cost of bank finance for euro area firms. Using micro-level bank data across a number of euro area countries, we identify individual bank balance sheet characteristics that contributed to this fragmentation. Interest rate pass-through heterogeneity is estimated using an error correction framework, which captures banks' funding constraints and balance sheet structures. Results show incomplete pass-through of changes in money market rates targeted by the central bank to firms' lending rates, with increases in sovereign bond yields affecting the cost of finance for firms, particularly in stressed countries. Individual bank characteristics have an effect on pass-through during the crisis, even after controlling for changes in macroeconomic conditions. The effect is greatest when looking at characteristics that capture bank funding difficulties, suggesting that a recovery in banks' funding capacities is an important element in reducing fragmentation in the transmission of monetary policy.
Subjects: 
financial crises
Interest rate pass-through
monetary policy transmission
JEL: 
E52
E58
G01
G20
E43
ISBN: 
978-92-899-1663-9
Document Type: 
Working Paper

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