Pass-through of monetary policy to bank interest rates in the economic and monetary union

Abstract

This dissertation analyzes the policy interest rate pass-through to bank lending and deposit interest rates in different interest hiking cycles within 11 EMU countries. Understanding the drivers behind heterogeneity within the pass-through process is crucial for improving the monetary policy transmission mechanism. Using an ARDL ECM approach, this dissertation examines both short- and long-term pass-through to bank interest rates and the influence of country-specific characteristics on the pass-through in the periods 2000-2001, 2005-2008 and 2022-2024. Results show, that in the periods 2000-2001 and 2005-2008, the policy interest rate pass-through was more homogenous. In 2022-2024, however, the pass-through was significantly lower for all bank rates. Despite this, the speed of pass-through remained consistently fast across all periods and bank rates. Furthermore, higher industrial production for large loans to NFCs and higher inflation for small loans to NFCs are associated with higher pass-through in the 2022 period. For household deposits in the same period, higher inflation and stock price index have a positive effect on the pass-through, whereas industrial production has a negative effect. For NFC deposits, the stock price index negatively impacts short-term pass-through but positively effects it in the long term. Higher country risk premiums negatively impact pass-through in the most recent hiking cycle.

Date of Award	2 Jul 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Carla Soares (Supervisor)