Credit strikes back: the macroeconomic impact of the 2022-23 ECB monetary tightening and the role of lending rates

Antonio Conti (), Stefano Neri and Alessandro Notarpietro

No 884, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper assesses the transmission of the European Central Bank's (ECB) 2022-23 monetary policy tightening to the euro-area economy, focusing on the cost of credit to non-financial corporations (NFCs). Three results are of particular interest. First, during the 2022-23 tightening cycle, key interest rates increased much more and at an unprecedented pace compared with previous tightening episodes, and the transmission to the credit market was more pronounced. Second, the results of a BVAR model-based analysis show that banks' risk perception is an important factor in explaining the stronger transmission of the 2022-23 monetary policy tightening to the cost of credit compared with previous episodes of monetary policy tightening. Third, simulations based on both BVAR and DSGE models show that the 2022-23 tightening is likely to have a further downward impact on real GDP growth and inflation in 2024. The bank lending channel is identified as a significant contributor to the macroeconomic effects of monetary policy tightening.

Keywords: monetary policy; bank lending channel; Bayesian VAR models; DSGE models (search for similar items in EconPapers)
JEL-codes: C32 E32 E37 E51 E52 (search for similar items in EconPapers)
Date: 2024-10
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_884_24

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