Bank lending standards and monetary transmission in the euro area

Daniel Gründler and Johann Scharler

Economics Letters, 2025, vol. 254, issue C

Abstract: This paper analyzes the role of banks in the transmission of monetary policy shocks in the euro area using a FAVAR model and survey data from the ECB’s Bank Lending Survey. We find that banks primarily respond to a contractionary policy shock by tightening lending standards rather than adjusting lending rates. Lending standards react more heterogeneously than market yields, while perceived loan demand varies even more across countries. These findings highlight the importance of both credit supply and demand in the heterogeneous transmission of monetary policy.

Keywords: Monetary policy; Banking sector; Lending standards; Euro area; Heterogeneity; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E30 E44 E52 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:254:y:2025:i:c:s0165176525002502

DOI: 10.1016/j.econlet.2025.112413

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