Discussion paper

DP11584 Mending the broken link: heterogeneous bank lending and monetary policy pass-through

We analyse the pass-through of monetary policy measures to lending rates to firms
and households in the euro area using a unique bank-level dataset. Banks’ characteristics
such as the capital ratio and the exposure to sovereign debt are responsible
for the heterogeneity of pass-through of conventional monetary policy changes. The
location of a bank is instead irrelevant. Non-standard measures normalized the capacity
of banks to grant loans resulting in a significant compression in lending rates.
Banks with a high level of non-performing loans and a low capital ratio were the most
responsive to the measures. Finally, we quantify the effects of non-standard policies
on the real economic activity using a standard macroeconomic model and find that in
absence of these measures both inflation and output gap would have been significantly
lower.

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Citation

Canova, F, M Ciccarelli and C Altavilla (2016), ‘DP11584 Mending the broken link: heterogeneous bank lending and monetary policy pass-through‘, CEPR Discussion Paper No. 11584. CEPR Press, Paris & London. https://cepr.org/publications/dp11584