Interest Rate Pass-Through in the EMU – New Evidence from Nonlinear Cointegration Techniques for Fully Harmonized Data

Ansgar Belke, Joscha Beckmann and Florian Verheyen

No 350, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: This study puts the monetary transmission process in the eurozone between 2003 and 2011 under closer scrutiny. For this purpose, we investigate the interest rate pass-through from money market to various loan rates for up to twelve countries of the European Monetary Union. Applying different cointegration techniques, we first test for a long-run relationship between loan rates and the Euro OverNight Index Average (EONIA). Based on these findings, we allow for different nonlinear patterns for shortrun dynamics of loan rates. Our investigation contributes to the literature in mainly two ways. On the one hand, we use fully harmonized data stemming from the ECB's MFI interest rate statistics. In addition, we consider smooth transition models as an extension of conventional threshold models. Our results point to considerable differences in the size of the pass-through with respect to either different loan rates or countries. In the majority of cases, the pass-through is incomplete and the dynamics of loans adjustment are different for reductions and hikes of money market rates.

Keywords: Interest rate pass-through; EMU; cointegration; ARDL bounds testing; smooth transition models (search for similar items in EconPapers)
JEL-codes: E43 E52 F36 G21 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Interest rate pass-through in the EMU – New evidence from nonlinear cointegration techniques for fully harmonized data (2013)
Working Paper: Interest Rate Pass-through in the EMU: New Evidence from Nonlinear Cointegration Techniques for Fully Harmonized Data (2012)
Working Paper: Interest Rate Pass-Through in the EMU – New Evidence from Nonlinear Cointegration Techniques for Fully Harmonized Data* (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:350

DOI: 10.4419/86788403

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