A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through
Gianluca Di Lorenzo () and
Giuseppe Marotta ()
Department of Economics from University of Modena and Reggio E., Faculty of Economics "Marco Biagi"
A new approach to search for structural breaks in the retail lending rates pass-through in the wake of EMU is proposed and implemented for Italy and Portugal. The econometric exercise shows that breakpoints cluster in the second semester 1999 and that the pass-through on short term lending is, in contrast with earlier research, sizeably lower in the post-break period. The recently proposed distinction between monetary policy and cost-of-funds approaches in the pass-through analysis does not yield different breakpoints. These results challenge the widely held view that EMU has in its wake enhanced the effectiveness of monetary transmission via the banking sector and made it more uniform across countries, because of rising and converging pass-throughs. A strengthened relationship lending could at least partly explain the reduced pass-through in the Italian case.
Keywords: Interest rates; Monetary policy; European Monetary Union; Relationship lending; Cointegration analysis; Structural breaks (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 F36 (search for similar items in EconPapers)
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Published in ICFAI Journal of Monetary Economics, Vol. 4, 2, pp. 6-31 (2006)
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Working Paper: A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:mod:depeco:0482
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