Abstract
The harmonized MIR retail interest rates for the euro area, available as of January 2003, show remarkable differences both in levels and dynamics with the previous unharmonized NRIR rates. This evidence should suggest caution in extrapolating the findings of the NRIR-based literature on the incomplete long-run pass-through of market rates even into the short term business lending rates, the least sticky ones among bank rates. We show that long run pass-throughs for MIR rates of smaller and larger short-term business loans are almost always complete or nearly so in nine of the founding EMU countries and in Greece.
Highlights
The literature on structural breaks, possibly associated to the introduction of the euro, and on equilibrium PTs for the last break-free period, relies on the unharmonized National Retail Interest Rates (NRIR) database collected by the European Central Bank (ECB), with a sample ending at most at September 2003
The main results on the second issue – the focus of this short paper - are of incomplete long run PTs in most countries, even for the short term business lending rate, the one with the highest PT among the retail rates and with a better maturity matching with market interest rates (Marotta 2008)
This paper shows that using the new database the estimated long run PTs for short term business lending rates are much closer to be complete, though cross-country range is quite wide
Summary
The overall picture of an incomplete equilibrium pass-through, even for the least sticky bank rate, produced by the NRIR-based literature, contrasts with the economic intuition that a reduced volatility in money market rates, owing to a single monetary policy, is bound to mitigate uncertainty and to ease the transfer of policy rate changes to retail rates These expected effects could have been offset by other contemporaneously developing processes in the sample period ending 2002-early 2003, such as the consolidation of the banking industry, mostly within national borders, and the revision of Basel capital requirements, during a prolonged period of low output growth and of lenders’ deteriorating creditworthiness in the euro area. Rates are computed as simple averages (Netherlands), sometimes excluding extremes (Austria, Germany, Portugal) or considering range of values for different types of loans (Ireland) or as weighted averages by stocks (for France, averages of three end of month rates); they refer to new businesses, except for Italy (outstanding stocks); borrowers include non enterprises (Germany, Italy r1); they are base rates, excluding credit risk premia, in Netherlands and Belgium (r2); they refer to loans explicitly secured (Germany, Ireland, Portugal) and of different maturities (from overdrafts for France and Ireland to 18 months for Italy); there are changes in January 1999 in the way the series are constructed (Netherlands, Portugal); for details see the NRIR methodology (ECB 2002)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
