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Structural Factor Analysis of Interest Rate Pass Through in Four Large Euro Area Economies

Anindya Banerjee (), Victor Bystrov and Paul Mizen ()
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Paul Mizen: University of Nottingham

No 1/2019, Lodz Economics Working Papers from University of Lodz, Faculty of Economics and Sociology

Abstract: In this paper we examine the influence of monetary policy at the ECB on mortgage and business lending rates offered by banks in the major euro area countries (Germany, France, Italy and Spain). Since there are many different policy measures that have been undertaken, we utilise a dynamic factor model, which allows examination of impulse responses to policy shocks conditioned by structurally identified latent factors. The distinct feature of this paper is that it explores the effects of three channels of policy transmission - short-term rates, long-term rates and perceived risk - ultimately directed towards bank lending rates. The analysis of the pass through is carried out in pre-crisis and post-crisis sub-samples after the financial crisis to demonstrate the changing influence of different policy measures on lending rates.

Keywords: monetary policy; dynamic factor models; interest rates; pass through (search for similar items in EconPapers)
JEL-codes: C32 C53 E43 E4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
Date: 2019-05-15
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http://hdl.handle.net/11089/28236 First version, 2019 (application/pdf)

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Working Paper: Structural Factor Analysis of Interest Rate Pass Through In Four Large Euro Area Economies (2017) Downloads
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