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Estimating the monetary policy interest-rate-to-performance sensitivity of the European banking sector at the zero lower bound

Bernd Hayo (), Kai Henseler and Marc Steffen Rapp

Finance Research Letters, 2019, vol. 31, issue C

Abstract: Using an event-study design, we investigate monetary policy interest-rate-to-performance sensitivity of the European banking sector over the 07/2012–06/2017 period when interest rates were (close to) zero. We apply the Wordscores approach to introductory statements of ECB's Governing Council press conferences to estimate a ‘shadow prime rate’. Based on short-run intraday event windows, we find shadow prime rate changes positively affect changes in the EURO-STOXX-Banks Future. Our findings add to the recent evidence documenting that banks benefit from increasing interest rate levels in a low-interest-rate environment.

Keywords: ECB; Central bank communication; Banking sector; Interest rate sensitivity; Shadow prime rate; Wordscores (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 G14 G21 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:31:y:2019:i:c:s1544612318307438

DOI: 10.1016/j.frl.2018.12.019

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