New evidence of heterogeneous bank interest rate pass-through in the euro area

Dominik Bernhofer and Till van Treeck

Economic Modelling, 2013, vol. 35, issue C, 418-429

Abstract: We analyse the bank interest rate pass-through in the euro area for the period 1999:1–2009:11, relating market interest rates to bank retail rates of comparable maturities. We first estimate single equation error correction models for seven interest rate categories and ten euro area countries and find that the interest rate pass-through displays substantial heterogeneity especially in the short run, but also in the long run. We then apply the pooled mean group estimator (PMGE) advanced by Pesaran et al. (1999), allowing for country-specific interest rate pass-through in the short run, while constraining the long-run pass-through to be homogeneous across countries. We find significant evidence of substantial heterogeneity in the short-run pass-through. Finally, we conduct sub-sample analysis and conclude that the degree of heterogeneity and the overall efficiency of the interest rate pass-through have not improved in the second half of the period since the founding of the European Monetary Union.

Keywords: Interest rate pass-through; European Monetary Union; European financial integration; Cointegration analysis; Panel data analysis (search for similar items in EconPapers)
JEL-codes: E43 F36 G21 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Working Paper: New evidence of heterogeneous bank interest rate pass-through in the euro area (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:35:y:2013:i:c:p:418-429

DOI: 10.1016/j.econmod.2013.07.020

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