One Size May Not Fit All: Banking Fragmentation and European Monetary Policies

40 Pages Posted: 5 May 2020 Last revised: 18 Jun 2021

See all articles by Marie-Hélène Gagnon

Marie-Hélène Gagnon

Université Laval - Faculté d'Administration

Céline Gimet

Institut d’Etudes Politiques d’Aix-en-Provence Sciences Po Aix and Aix Marseille Univ, CNRS, AMSE, Marseille, France

Date Written: June 18, 2021

Abstract

This paper investigates the impact of ECB policies on credits considering financial and banking fragmentation for member countries. Using European data from the past decade, a period characterised by growing fragmentation, we estimate regional SVAR models to study the impact of conventional and unconventional measures on price and volume indicators of fragmentation. The risk-taking channel is studied using GVAR models in order to document the consequence of financial fragmentation at the national level. We find that unconventional monetary policies increase credit volumes in peripheral countries. In addition, monetary policies can alleviate financial and banking fragmentation, but mostly in terms of price dispersion rather than credit volume. Finally, unconventional monetary policies increase capital outflows outside the Eurozone.

Keywords: Financial fragmentation, banking fragmentation, risk-taking channel, monetary policy

JEL Classification: E44, E50, F36, F42, F45

Suggested Citation

Gagnon, Marie-Hélène and Gimet, Céline, One Size May Not Fit All: Banking Fragmentation and European Monetary Policies (June 18, 2021). Available at SSRN: https://ssrn.com/abstract=3590286 or http://dx.doi.org/10.2139/ssrn.3590286

Marie-Hélène Gagnon (Contact Author)

Université Laval - Faculté d'Administration ( email )

Quebec G1K 7P4
Canada

Céline Gimet

Institut d’Etudes Politiques d’Aix-en-Provence Sciences Po Aix and Aix Marseille Univ, CNRS, AMSE, Marseille, France ( email )

Aix-en-Provence
France

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