The Impact of Unconventional Monetary Policies on Retail Lending and Deposit Rates in the Euro Area

Abstract

This paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and non-financial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key money and capital market rates via daily event study analysis with monthly retail rate pass-through estimation. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries. Our results show that the ECB's UMPs - particularly the measures launched since 2012 - significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy. The impact on banks' intermediation margins through retail lending-deposit rate spreads turns out to be not clear-cut, with significant compressions prevailing only in Germany and Italy.

Keywords: retail rates, pass-through, unconventional monetary policy, European Central Bank

JEL Classification: E43, E52, G21