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A less effective monetary transmission in the wake of EMU? Evidence from lending rates pass-through

Gianluca Di Lorenzo () and Giuseppe Marotta ()

Heterogeneity and monetary policy from Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica

Abstract: 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)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac, nep-mon and nep-sea
Date: 2005-03
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Persistent link: http://EconPapers.repec.org/RePEc:mod:modena:0503

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