Regional Credit Channel – Euro Area Analysis

Abstract

Monetary policy of the ECB is conducted for average economic conditions of the euro area, which means that monetary policy could have diverse effects in different euro area banking sectors (economies). Presence of (regional) credit channel was tested using monthly data for euro area member states for period between January 1999 and March 2009. Panel data analysis was performed for three types of loans: loans to nonfinancial corporations, consumer loans and housing loans. Loans were regressed on lagged values of themselves, present and lagged values of monetary policy stance indicator, economic climate indicator, inflation level, financial crisis dummy, limitations of the banking system funding measured through spread between deposit interest rate of credit institutions and central bank interest rate, banking sector characteristics variable and product of monetary policy stance indicator and banking sector characteristics variable. Results differ for different types of loans considered. It is possible to detect some elements of regional bank lending channel when analysing consumer and housing loans. Differences in response of different types of loans indicate the presence of a balance sheet channel.