Interest rate pass-through in the euro area: After two decades of crises, a return to normality?
Résumé
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This paper investigates the monetary policy transmission in the euro area countries over two decades of single currency. This period was marked by financial, sovereign debt and health crises, as well as by episodes of low and high inflation rates. To face these challenges, the European Central Bank used both conventional and unconventional monetary policy measures of an unprecedented scale. We study whether, and if so to what extent, these different events have affected the transmission of monetary policy to retail bank interest rates in several euro area countries. Our results confirm previous findings, namely that interest rate passthrough has been influenced by the various crises that occurred over the course of the euro area existence. After the pandemic, however, we observe a return to a near complete transmission of monetary policy impulses to lending rates, likely under the effect of a reduction in excess liquidity.
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