BANK INTEREST RATE PASS-THROUGH IN THE EURO AREA: THE IMPACT OF THE FINANCIAL CRISIS

摘要

This study examines the interest rate pass-through process in the Euro area banking market and the impact of the post-2008 financial turmoil on this process using the recently produced cost of borrowing indicators (ECB, 2013). The authors use a typical interest rate pass-through model, augmented with key structural variables capturing demand and supply conditions in banking markets across counties. After endogenously identifying the timing of the structural break caused by the financial crisis, the authors estimate the model for both the pre-crisis and the post-crisis periods, using the methodology of the Pooled Mean Group and the simpler Mean Group estimators (Pesaran, Shin & Smith, 1999). The results of this study indicate an increased pass-through heterogeneity within the Eurozone during the post-crisis period. This can be explained by structural factors which influenced the long-run equilibrium of the pass-through process, as well as the increased dispersion of the short-run dynamics.