Book Description

This thesis re-investigates the retail interest rate pass-through in the countries of the euro area over the period 1993-2002. The first chapter surveys the empirical literature on retail interest rate pass-through in Euroland and provides a theoretical overview of its determinants. The second chapter examines the retail interest rate pass-through using the ARDL approach to cointegration of Pesaran et al. (2001). Our results underscore the sluggishness of bank interest rates following a monetary policy impulse. We also underline the heterogeneity of short-term and long-term interest rate pass-through, as well as of the speed of adjustment coefficients across euro area countries. The third chapter handles the presence of structural breaks in the interest rate series by the use of the rolling bounds testing approach. Our findings stress multiple cointegration periods. Our results show that interest rates on loans to enterprises track more closely the overnight money market interest rate with respect to interest rates on loans to households, especially housing loans. Moreover, even though our findings based on the cost of funds approach are broadly in line with those of the monetary policy approach, they put more often into evidence the presence of the cointegration relation, at least partially. In addition, we cannot conclude to a closer relationship between retail and market interest rates from January 1999 onward. No clear picture emerges about the evolution of the impact multiplier and the loading factor. Lastly, we stress the heterogeneity of short-term responses of retail interest rates to monetary policy shocks, as well as of the levels of the adjustment speed.