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Mending the broken link: heterogeneous bank lending and monetary policy pass-through

Carlo Altavilla (), Fabio Canova () and Matteo Ciccarelli

No 11584, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyse the pass-through of monetary policy measures to lending rates to firms and households in the euro area using a unique bank-level dataset. Banks' characteristics such as the capital ratio and the exposure to sovereign debt are responsible for the heterogeneity of pass-through of conventional monetary policy changes. The location of a bank is instead irrelevant. Non-standard measures normalized the capacity of banks to grant loans resulting in a significant compression in lending rates. Banks with a high level of non-performing loans and a low capital ratio were the most responsive to the measures. Finally, we quantify the effects of non-standard policies on the real economic activity using a standard macroeconomic model and find that in absence of these measures both inflation and output gap would have been significantly lower.

Keywords: European Banks; Heterogeneity; Monetary pass-through; VARs (search for similar items in EconPapers)
JEL-codes: C23 E44 E52 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
Date: 2016-10
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