ECB quantitative tightening: Euribor-Overnight Index Swap spread and transmission mechanism efficiency

Roberto Ercegovac (), Tea Šestanović () and Mario Pečarić ()
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Roberto Ercegovac: OTP Bank Croatia; University of Split, Faculty of Economics, Business and Tourism
Tea Šestanović: University of Split, Faculty of Economics, Business and Tourism
Mario Pečarić: University of Split, Faculty of Economics, Business and Tourism; University of Rijeka

Bank i Kredyt, 2025, vol. 56, issue 2, 163-184

Abstract: This paper examines whether the credit risk of banking financial intermediaries can influence the effectiveness of the monetary policy transmission mechanism. The effects are transmitted via the Euribor – Overnight Index Swap (OIS) spread. The Euribor-OIS spread is mainly explained by the credit risk and the probability of default of the panel banks participating in the Euribor. The DCC-MGARCH model confirms a significant relationship between the credit risk of the ten largest Euribor panel banks and the Euribor-OIS spread with an impact on the financing costs of the real sector. The study is based on daily data (1 June 2020 – 30 June 2023). The results of the DCC-MGARCH model are confirmed by a continuous wavelet-based analysis. The research model reveals inefficiencies in the interest rate pass- -through mechanism, which calls for a continuous assessment of the Euribor reference rate mechanism, not only with regard to the transparency of interbank transactions, but also to the assessment of the credit risk of Euribor panel banks.

Keywords: Euribor-OIS spread; credit risk; DCC-MGARCH model; transmission mechanism inefficiencies; wavelet coherence analysis (search for similar items in EconPapers)
JEL-codes: D44 D53 G12 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpbik:v:56:y:2025:i:2:p:163-184

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