Structural Factor Analysis of Interest Rate Pass Through In Four Large Euro Area Economies

Anindya Banerjee, Victor Bystrov and Paul Mizen

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In this paper we examine the influence of unconventional monetary policy at the ECB on mortgage and business lending rates offered by banks in the major euro area countries (Germany, France, Italy and Spain). Since there are many different policy measures that have been undertaken, we utilise a dynamic factor model based on the Bernanke Boivin and Eliasz (2005) approach, which allows examination of impulse responses to a policy rate conditioned by structurally identified latent factors. The distinct feature of this paper is that it explores the effects of all three phases of monetary policy to emphasize the transmission channels - through short-term rates, long-term yields and and perceived risk - ultimately directed towards bank lending rates. Further analysis of unconventional monetary policy is provided through rolling window impulse responses and variance decompositions of the identified financial factors on lending rates to demonstrate the changing influence of different policy measures on lending rates.

Keywords: monetary policy; dynamic factor models; interest rates; pass through (search for similar items in EconPapers)
JEL-codes: C32 C53 E4 E43 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2017-11-01
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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https://repec.canterbury.ac.nz/cbt/econwp/1707.pdf (application/pdf)

Related works:
Working Paper: Structural Factor Analysis of Interest Rate Pass Through in Four Large Euro Area Economies (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:17/07

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