One Monetary Policy and Two Bank Lending Standards: A Tale of Two Europes

Sangyup Choi, Kimoon Jeong and Jiseob Kim
Additional contact information
Kimoon Jeong: Yonsei University

No 2023rwp-209, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: What accounts for contrasting economic paths between core and periphery countries in the euro area? Unlike many studies focusing on fiscal problems, we highlight the interplay of bank mortgage lending standards and imbalances created by the common monetary policy framework. To illustrate the mechanism, we derive a country-specific monetary policy stance gap and estimate the panel VAR model of core and periphery countries, respectively. While the widening monetary policy stance gap—the accommodative stance of the ECB given individual economic conditions—induces a similar increase in the demand for mortgage credit in both regions, it is followed by sharply different responses of the supply side of mortgage credit: bank mortgage lending standards are relaxed (tightened) in periphery (core) countries, which can rationalize vastly different paths in mortgage credit, residential investment, and housing prices between the two Europes. In searching for the source of different bank lending behaviors, we find that banks in core countries, where macroprudential policies on mortgage credit are tightened and bank lending margin decreases, increase their cross-border lending to periphery countries, which could fuel excessive risk-taking in periphery countries.

Keywords: Euro area; Mortgage credit; Monetary policy stance gap; Bank lending survey; Macroprudential policy; Cross-border banking flows; Panel VARs. (search for similar items in EconPapers)
JEL-codes: E21 E32 E44 F52 G21 (search for similar items in EconPapers)
Pages: 50pages
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fdg, nep-ifn, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://121.254.254.220/repec/yon/wpaper/2023rwp-209.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:yon:wpaper:2023rwp-209

Access Statistics for this paper

More papers in Working papers from Yonsei University, Yonsei Economics Research Institute Contact information at EDIRC.
Bibliographic data for series maintained by YERI ().