Competition and the Pass-Through of Unconventional Monetary Policy: Evidence From TLTROs

56 Pages Posted: 9 Jul 2019

See all articles by Matteo Benetton

Matteo Benetton

University of California, Berkeley - Haas School of Business

Davide Fantino

Bank of Italy

Date Written: September 27, 2018

Abstract

We make use of an allocation rule by the ECB for Targeted Longer-Term Refinancing Operations (TLTROs) to provide causal evidence on the effect of unconventional monetary policy on the cost of loans to firms. Using transaction-level data from Italy’s Central Credit Register and a difference-in-difference identification strategy, we show that treated banks decrease loan rates to the same firm by approximately 20 basis points compared with control banks. We then study how the effects of the liquidity injection vary according to the competition in the banking sector, exploiting the local nature of bank-firm lending relationships and exogenous variations in the number of pawnshops across Italian cities during the Renaissance. Our results suggest that banks' market power can significantly impair the effectiveness of unconventional monetary policy, especially for safer and smaller firms.

Keywords: unconventional monetary policy, bank competition, pass-through

JEL Classification: E51, E52, L11

Suggested Citation

Benetton, Matteo and Fantino, Davide, Competition and the Pass-Through of Unconventional Monetary Policy: Evidence From TLTROs (September 27, 2018). Bank of Italy Temi di Discussione (Working Paper) No. 1187, September 2018. Available at SSRN: https://ssrn.com/abstract=3415657 or http://dx.doi.org/10.2139/ssrn.3415657

Matteo Benetton

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Davide Fantino (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Roma, 00184
Italy

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