Peering beyond the veil: A dissection of aggregate bank lending rate movements into pricing and composition effects using credit-level data

Paul Reimers and Henrike Michaelis

No 36/2025, Discussion Papers from Deutsche Bundesbank

Abstract: Compared to 2021, the aggregate bank lending rate to firms in the euro area in- creased strongly during the monetary tightening and easing cycle of 2022-25. However, it rose up to 1.5 percentage points less than the rise in policy and money market rates. We approach this gap using granular credit registry data, revealing how changes in the composition and pricing of credit translate into developments of the aggregate rate. The tool we use is standard in labor economics, but scarcely used outside that context: the Oaxaca-Blinder decomposition. We are the first to apply it to analyze the development of an aggregate variable over time in the loan pricing literature. We find that changes in the pricing of credit compared to 2021 were the main reason why a gap opened up. Compositional shifts in firm and credit characteristics and changes in banks' market shares had minor effects. Our micro-level insights have implications for policy makers, bankers and debtors, as they help understand what shapes aggregate pass-through patterns and the strength of monetary policy transmission. Moreover, our approach opens up promising new applications in the loan supply literature.

Keywords: Credit pricing; euro area; monetary policy transmission; interest ratepass-through (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 G20 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:334533

DOI: 10.71734/DP-2025-36

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