Business lending rate pass-through in the Eurozone: monetary policy transmission before and after the financial crash

Abstract

The aim of the paper is to understand how the financial crisis has affected the interest rate pass-through (PT) in the Eurozone between market rates and bank interest rates. We have applied a SUR-ECM model. This methodology allows testing for the homogeneity of the PT of the euro area countries. The main results of this investigation are the following. First, not surprisingly, we show that the financial turmoil since October 2008 has drastically affected the interest rate PT in the Eurozone. Second, the PT since the crisis is less complete than in the period previously studied. Third, nevertheless, it appears that the homogeneity between the Eurozone members has increased.