Belke, Ansgar; Beckmann, Joscha; Verheyen, Florian:

Interest Rate Pass-Through in the EMU-New Evidence from Nonlinear Cointegration Techniques for Fully Harmonized Data

In: DIW Diskussionspapiere = Discussion Papers / Deutsches Institut für Wirtschaftsforschung, (2012) ; Nr. 1223, S. 1-27
ISSN: 1433-0210
Zeitschriftenaufsatz / Fach: Wirtschaftswissenschaften
Fakultät für Wirtschaftswissenschaften » Fachgebiet Volkswirtschaftslehre » Makroökonomik
This study puts the monetary transmission process in the eurozone between 2003 and 2011 under
closer scrutiny. For this purpose, we investigate the interest rate pass-through from money market to
various loan rates for up to twelve countries of the European Monetary Union. Applying different
cointegration techniques, we first test for a long-run relationship between loan rates and the Euro
OverNight Index Average (EONIA). Based on these findings, we allow for different nonlinear patterns
for short-run dynamics of loan rates. Our investigation contributes to the literature in mainly two
ways. On the one hand, we use fully harmonized data stemming from the ECB’s MFI interest rate
statistics. In addition, we consider smooth transition models as an extension of conventional
threshold models. Our results point to considerable differences in the size of the pass-through with
respect to either different loan rates or countries. In the majority of cases, the pass-through is
incomplete and the dynamics of loans adjustment are different for reductions and hikes of money
market rates.