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A Less Effective Monetary Transmission in the Wake of EMU? Evidence from Lending Rates Pass-ThroughGianluca Di LorenzoPrometeia SpA Giuseppe MarottaUniversità degli studi di Modena e Reggio Emilia (UNIMORE) - Faculty of Business and Economics; Università degli studi di Modena e Reggio Emilia (UNIMORE) - Center for Research in Banking and Finance (CEFIN) February 2005 Università degli studi di Modena e Reggio Emilia Working Paper No. 482 Abstract: A new approach to search for structural breaks in the retail lending rates pass-through in the wake of EMU is proposed and implemented for Italy and Portugal. The econometric exercise shows that breakpoints cluster in the second semester 1999 and that the passthrough on short term lending is, in contrast with earlier research, sizeably lower in the post-break period. The recently proposed distinction between monetary policy and cost-of-funds approaches in the passt-hrough analysis does not yield different breakpoints. These results challenge the widely held view that EMU has in its wake enhanced the effectiveness of monetary transmission via the banking sector and made it more uniform across countries, because of rising and converging pass-throughs. A strengthened relationship lending could at least partly explain the reduced passthrough in the Italian case.
Number of Pages in PDF File: 29 Keywords: Interest rates, monetary policy, European monetary union, relationship lending, cointegration analysis, structural breaks JEL Classification: E43, E52, E58, F36 working papers seriesDate posted: June 17, 2005Suggested CitationContact Information
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