Monetary Policy Transmission: The Role Of Banking Sector Characteristics In The Euro Area

44 Pages Posted: 8 Jan 2025

See all articles by Georgios Mermelas

Georgios Mermelas

University of Patras

Athanasios Tagkalakis

Bank of Greece; University of Patras

Date Written: November 30, 2024

Abstract

This study examines the impact of monetary policy shocks on the macroeconomic performance of 20 euro area countries. In doing so, it assesses how variations in the characteristics of the banking system affect the transmission of monetary policy. The main results show that a contractionary monetary policy shock reduces both inflation and retail sales while increasing the unemployment rate. In contrast, an expansionary monetary policy shock has positive but much milder effects on the economy. Βanking systems with higher profitability, risk exposure and lower assets-to-GDP cause a stronger effect of monetary policy on the economy. The main results hold when we consider alternative monetary policy shocks.

Keywords: Monetary Policy, Euro Area, Banking Characteristics, Monetary Policy Transmission

JEL Classification: E58, E44, F45, G21, G15

Suggested Citation

Mermelas, Georgios and Tagkalakis, Athanasios, Monetary Policy Transmission: The Role Of Banking Sector Characteristics In The Euro Area (November 30, 2024). Bank of Greece Working Paper No. 332, Available at SSRN: https://ssrn.com/abstract=5086963 or http://dx.doi.org/10.2139/ssrn.5086963

Georgios Mermelas

University of Patras ( email )

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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