Expected Versus Unexpected Monetary Policy Impulses and Interest Rate Pass-Through in Eurozone Retail Banking

Maastricht University METEOR Research Memorandum No. RM/04/001

37 Pages Posted: 29 Jun 2004

See all articles by Stefanie Kleimeier

Stefanie Kleimeier

Maastricht University - Department of Finance; Open Universiteit; Univ. of Stellenbosch Business School

Harald Sander

University of Applied Sciences Cologne

Date Written: November 11, 2003

Abstract

This paper follows up on recent studies of the Eurozone interest rate pass-through. Using a generalized empirical approach that allows for a variety of different specifications of the pass-through, including asymmetric adjustment, the role of interest rate expectations, proxied by EURIBOR futures, in determining retail banking product pricing is explored. It is shown that the pass-through is faster when monetary policy changes are correctly anticipated. However, this result is limited to the loan market and here more pronounced for positive interest rate shocks, while particularly deposit rate are found to be rigid, suggesting an important role of competitive banking markets for the pass-through process. Overall, our results show that a well-communicated monetary policy is important for a speedier and a more homogenous pass-through and thus for a more effective monetary policy in the Eurozone.

Keywords: Interest Rates, Interest Rate Expectations, Monetary Policy, European Monetary Union, European Banking, EURIBOR Futures, Competition in Banking, Asymmetric Adjustment, Cointegration Analysis, Threshold Cointegration

JEL Classification: E43, E52, E58, F36

Suggested Citation

Kleimeier, Stefanie and Sander, Harald, Expected Versus Unexpected Monetary Policy Impulses and Interest Rate Pass-Through in Eurozone Retail Banking (November 11, 2003). Maastricht University METEOR Research Memorandum No. RM/04/001, Available at SSRN: https://ssrn.com/abstract=555923 or http://dx.doi.org/10.2139/ssrn.555923

Stefanie Kleimeier (Contact Author)

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open Universiteit

Valkenburgerweg 177
Heerlen, 6419 AT
Netherlands

Univ. of Stellenbosch Business School

Carl Cronjé Drive
CAPE TOWN, Cape Town 7535
South Africa

Harald Sander

University of Applied Sciences Cologne ( email )

Claudiusstrrasse 1
50678 Cologne
Germany
+49 221 82753419 (Phone)
+49 221 82753131 (Fax)