The Drop in Non-Financial Firms Cost of Credit: A Cross-Country Analysis

25 Pages Posted: 17 Apr 2018

See all articles by Paolo Finaldi Russo

Paolo Finaldi Russo

Bank of Italy

Fabio Parlapiano

Bank of Italy; Sapienza, University of Rome; TSBE - Tasmanian School of Business

Date Written: February 27, 2018

Abstract

Following the sovereign debt crisis, bank interest rates charged to non-financial firms declined sharply in the euro area. This work explores the firms’ balance-sheet channel hypothesis on the role played by firms’ characteristics and risk profile in the transmission of monetary policy. Using a European firm-level survey, we find that in all countries changes in borrowers’ characteristics played a non-negligible role. They account for 30 out of 267 basis points of the total interest rate drop in Italy, 36 out of 160 basis points in core European countries and less than 20 out of 306 basis points in other vulnerable economies. The key firm characteristic driving the decline in interest rates in Italy and in other vulnerable countries is the improvement in the financial situation of non-financial firms, whereas in core countries the decline is mainly due to a shift in bank credit towards relatively older and larger borrowers.

Keywords: interest rates, SAFE, financial constraints, credit rationing

JEL Classification: G20, G30

Suggested Citation

Finaldi Russo, Paolo and Parlapiano, Fabio, The Drop in Non-Financial Firms Cost of Credit: A Cross-Country Analysis (February 27, 2018). Bank of Italy Occasional Paper No. 426, Available at SSRN: https://ssrn.com/abstract=3160814 or http://dx.doi.org/10.2139/ssrn.3160814

Paolo Finaldi Russo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Fabio Parlapiano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

HOME PAGE: http://www.bancaditalia.it/

Sapienza, University of Rome ( email )

Via del Castro Laurenziano, 9
Rome, Rome 00161
Italy

HOME PAGE: http://https://web.uniroma1.it/dip_management/

TSBE - Tasmanian School of Business ( email )

Private Bag 84
Hobart, TAS 7001
Australia

HOME PAGE: http://www.utas.edu.au/business-and-economics/home

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