EMU and the Transmission of Monetary Policy: Evidence from Business Lending Rates

Transcription

1 EMU and the Transmission of Monetary Policy: Evidence from Business Lending Rates Boris Hofmann ZEI, University of Bonn Walter-Flex-Strasse Bonn bhofmann@uni-bonn.de ABSTRACT The pass-through of money market rates to business lending rates is an important link in the monetary transmission process in the euro area. This paper analyses the pass-through of money market rates to short-term and long-term business lending rates in the four largest euro area countries. Based on an error-correction framework I assess whether pass-through has become faster and more similar across countries since the introduction of the euro. The results suggest that passthrough has become faster in France and Italy, but slower in Germany. Interest rate pass-through has become more similar in France, Italy and Spain, compared to a significantly slower pass-through in German lending rates.

2 1. Introduction Monetary authorities control market rates in the short-term money market. By ensuring that the money markets are always short of cash on a daily basis, central banks reserve the right to supply the shortage at a price of their own choosing (the policy rate). Changes in the policy rate are transmitted to the economy via its effect on capital and retail market interest rates and on asset prices 1. In their overview of the evidence on monetary transmission in the euro area, Angeloni et al. (2002) conclude that monetary policy affects real activity mainly via its effect on business investment and that the classic interest rate channel plays a dominant role in the euro area countries. This statement, together with the fact that bank loans account for over 90% of credit to the private sector in the euro area 2, implies that the pass-through of policy rates to rates charged on loans to enterprises is an important link in the monetary transmission process in the euro area 3. Theory suggests that the speed of adjustment of loan rates to policy rates depends on the degree of competition in the credit market and on the monetary policy regime (Hannan and Berger, 1991). This hypothesis appears to be supported by the empirical evidence (Hannan and Berger, 1991, Neumark and Sharp, 1992, Cottarelli and Kourelis, 1994, Mojon, 2000). The start of EMU in January 1999 is expected to have enhanced both competition and integration of European banking sectors, so that the pass-through of policy rates to loan rates is expected to become faster and more similar across countries. De Bondt (2002) analyses interest rate pass-through at the aggregate euro area level and concludes that there is supportive evidence of a significantly quicker pass-through since the start of EMU. In this paper I assess whether this conclusion also holds at the individual country level. Morevover, I investigate whether cross-country differences in interest rate pass-through persist under EMU. 1 See Mishkin (1996) for an overview of the various channels of monetary transmission. Dornbusch et al. (1998) and Peersman (2001) provide some stylised facts on the factors determining the effectiveness of the various channels of monetary transmission in the euro area. 2 In December 2000 the claims of euro area Monetary and Financial Institutions (excluding the Eurosystem) against private non-banks were composed of Billions Euros and 263 Billions Euros securities (ECB, 2000). Bank loans therefore make up more than 90% of credit to the private non-bank sector in the euro area. 3 Other important determinants of the interest rate channel are the sensitivity of investment and consumption demand to interest rate changes and the indebtedness of the private sector. Peersman (2001) and Mojon (2000) provide some stylised facts on these issues. 2

3 Based on an error-correction framework I analyse the pass-through of interbank money market rates to business lending rates in the four largest euro area countries Germany, France, Italy and Spain over the period January 1995 till November The paper contributes to the literature in two ways. First, for the first time it is explicitly tested whether differences in retail rate pass-through across countries are statistically significant. Second, I perform a first test of the effect of the start of EMU on the monetary transmission process in euro area countries by testing statistically whether interest rate pass-through has become faster and more similar across countries. The lending rates are taken from the ECB s database for national retail interest rates. This database compiles key national retail rates for various categories of loan and deposit rates 4. The national retail rates are provided by the national central banks and are the most representative rates for a given category. This means that the loan rates are not identical across countries, but since the focus of this paper is the transmission of monetary policy rather than the structural determinants of interest rate pass-through, it is preferable to have for each country a loan rate that is most representative for a give segment of the credit market rather than fully identical rates across countries. Following comparative studies on the transmission of monetary policy in large scale structural macroeconometric models (BIS, 1995, Van Els et al., 2001), I compare the adjustment of loan rates to a 100 basis points increase in the money market rate maintained for two years. The government bond yield is assumed to move according to the Rational Expectations Hypothesis of the Term-Structure. By calculating the differences between pass-through paths with confidence bounds I assess whether the differences in pass-through are statistically significant. The analysis is replicated for the EMU sub-sample starting in January 1999 in order to assess whether the pass-through process has changed since the introduction of the euro. 4 Detailed methodological notes for this database can be found on the ECB s website 3

4 The main empirical findings are that pass-through has become faster in France and Italy, but slower in Germany. The slowdown in pass-through in Germany may reflect increasing problems in the German banking sector in recent years. As regards cross-country differences in pass-through, I find that German loan rates adjust slower than loan rates in the other three countries, while pass-through in French, Italian and Spanish long-term loan rates is not significantly different over the EMU sub-sample. These differences in interest rate passthrough between Germany on one side and France, Italy and Spain on the other side suggest that monetary transmission in the euro area via the direct interest rate channel is asymmetric. The plan of the paper is as follows: Section 2 develops a conceptual framework for the analysis of money market rate pass-through and discusses the potential implications of EMU for the pass-through process in euro area countries. In Section 3 I describe the data used in the empirical analysis. Section 4 outlines the empirical methodology and presents the results of the empirical analysis. Section 5 concludes. 2. Interest Rate Pass-through and EMU Most empirical studies of interest rate pass-through covering euro area countries focus on the responsiveness of short-term business loan rates (Cottarelli and Kourelis, 1994, Borio and Fritz, 1995, Toolsema et al., 2001), fewer studies also analyse pass-through to long-term business loan rates (BIS, 1994, Mojon, 2000, Donnay and Degryse, 2001) 5. A common finding of these studies is that interest rate pass-through is sluggish. On the other hand, there appears to be no clear cut pattern of cross country differences. The results depend strongly on the chosen methodology and the sample period. Moreover, a major flaw of all previous studies of interest rate pass-through is that the cross-country comparisons are purely based on 5 See De Bondt (2002) for an overview of the studies on interest rate pass-through in euro area countries. 4

5 point estimates of pass-through paths, but it is never tested whether cross-country differences in pass-through are actually statistically significant. Angeloni et al. (2002) conclude that monetary policy affects real activity mainly via its effect on business investment and that the direct interest rate channel plays a dominant role in the euro area countries. This implies that the pass-through of policy rates to business lending rates is an important link in the monetary transmission process in the euro area and that crosscountry differences in interest rate pass-through may be an important source of asymmetric monetary transmission. How do policy rates affect lending rates? Policy rates are transmitted to capital market interest rates via the term structure of interest rates (Goodfriend, 1991). Instead of extending a loan, banks could invest the funds in the capital market, so that the marginal opportunity cost of extending a loan is given by the corresponding capital market interest rate. A change in capital market interest rates will therefore trigger a change in lending rates in the same direction. The adjustment of loan rates to capital market rates may be sluggish because of non-negligible menu costs associated with changing posted loan rates, such as the cost of advertising the new rates 6. Based on Rotemberg and Saloner (1987), Hannan and Berger (1991) show that given that a banking firm exercises some market power, e.g. because of product differentiation or chartering restrictions, retail (loan) 7 rates will only be adjusted if the cost of not adjusting loan rates to a change in capital market rates is higher than the (menu) cost of adjustment. As a result, the adjustment of loan rates to capital market rates will be sluggish in the short-run, with the degree of sluggishness being a negative function of the degree of competition and the efficiency of the banking sector (Hannan and Berger, 1991). This hypothesis appears to be supported by the empirical evidence. Based on cross-sections of US banks, Hannan and Berger (1991) and Neumark and Sharpe (1992) find that deposit and prime lending rates are respectively more rigid in markets characterised by high 6 The idea that fixed costs of changing of prices gives rise to price rigidity was introduced by Barro (1972) and then further developed by Sheshinski and Weiss (1977, 1983), Rotemberg (1983), Mankiw (1985). 7 Hannan and Berger (1991) focus on the adjustment of deposit rates, but their model also applies to loan rate adjustment. 5

6 concentration. Mojon (2000) finds that retail rates in six euro area countries adjust significantly faster in deregulated markets. Another important factor of financial structure that may also affect the rate setting behaviour of financial institutions is the monetary policy regime. In a high inflation environment, nominal variables such as nominal loan rates may adjust faster due to explicit or implicit indexation (Cecchetti, 1986). A negative effect on the responsiveness of loan rates may arise from high money market rate volatility. In the presence of adjustment costs banks will follow a change in money market rates only if this change is not expected to be reversed in the near future. If the movements in money market rates are very erratic, banks are more likely to expect that an observed change in money market rates is transitory so that the responsiveness of loan rates may on average be lower. The empirical evidence seems to lend support to both hypotheses, since Cottarelli and Kourelis (1995) and Mojon (2000) find that a higher level of inflation increases and a high variability of money market rates reduces the responsiveness of loan rates. Since the mid 1980s, European banking sectors have experienced considerable changes in structure and in the monetary policy regime. Financial sectors have gone through a rigorous process of deregulation (Gual, 1999) and privatisation 8 (La-Porta et al., 1998) and monetary policy regimes have converged in the run-up to EMU (Angeloni and Dedola, 1999). The introduction of the euro is expected to further promote competition and integration of European credit markets, so that the adjustment of loan rates to policy rates is expected to become faster and more similar across countries under EMU. White (1998) argues that the introduction of the euro is the final step in integrating European financial and banking markets and will therefore increase competition for national banking sectors. Also, due to its expected widening, deepening and liquidity-increasing effect on financial markets, the introduction of the euro is widely expected to promote disintermediation, i.e. the replacement of bank loans with securities (ECB, 1999a, McCauley and White, 1997). Dornbusch et al. (1998) hold that the advent of the euro together with the ongoing process of deregulation and 8 For example, between 1985 and 1995 the share of assets of the top ten banks owned by the government has dropped from 75% to 17% in France and from 65% to 36% in Italy. 6

7 innovation in financial markets will revolutionize the financial structure in Europe so that Europe will in short become more like the USA.. On the other hand, Danthine et al. (1999) and Cecchetti (1999) argue that there are still substantial differences in legal systems across EU countries, which will prove to be an impediment for convergence in financial structures. Several studies find that features of financial structure, such as the degree of competition in the banking sector or the monetary policy regime, are important determinants of the responsiveness of retail rates 9. It is therefore possible that, because of deregulation, privatisation and the introduction of the euro, the relationship between loan rates and policy rates has changed and has become more similar across countries since the start of EMU. 3. Data In the following I analyse the relationship between short-term and long-term loan rate and corresponding short-term and long-term capital market interest rates in the four largest euro area countries Germany, France, Italy and Spain, using monthly data. The sample period is January 1995 till November The loan rate data were taken from the ECB database for national retail interest rates. This database compiles key national retail rates for various categories of loan and deposit rates. The national retail rates are provided by the national central banks and are the most representative rates for a given category. This means that for each country the most representative short-term and long-term lending rate for loans to enterprises is provided. These rates are comparable but not identical. The short-term loan rates are rates charged on short-term loans to or current account advances for enterprises. The longterm loan rates are rates charged on term loans to enterprises. For Germany the ECB series for medium to long-term business loan rates was spliced with a comparable mortgage rate series 9 These studies are either based on a large panel of individual banks (Hannan and Berger, 1991, Neumark and Sharpe, 1992), a large panel of countries (Cottarelli and Kourelis, 1994), or a large panel of retail banking markets in several countries (Mojon, 2000). 7

8 in October The representative German long-term loan rate is fully fixed, while the representative long-term loan rate for France, Italy and Spain is an average of fixed and variable rates. A more detailed description of the lending rates can be found in the data appendix. Since the loan rates are not identical, differences in pass-through may reflect differences in the definition of loan rates rather than differences in financial structure. But as the focus of this paper is the transmission of monetary policy rather than the structural determinants of interest rate pass-through, it is preferable to have for each country a loan rate that is most representative for a give segment of the credit market rather than fully identical rates across countries. In order to approximately match the average maturity of the short-term loan rates I chose the three months money market rate as the short-term capital market interest rate. The three months money market rate is also commonly used as the monetary policy instrument in studies of monetary policy transmission in the euro area (see e.g. Barran et al., 1996 and Ehrmann, 2000). National money market rates were spliced with the three months EURIBOR in January The money market rate data were taken from the IMF International Financial Statistics (IFS). The long-term capital market interest rate was chosen to match the average maturity of the long-term loan rate. That was for Germany a 4 year government bond yield taken from the Monthly Report of the Deutsche Bundesbank, for France a five year bond yield taken from the IMF IFS, for Italy the average yield of bonds with a residual maturity between four and six years also taken from the IMF IFS and for Spain a three year bond yield taken from the Bank of Spain s Statistical Bulletin. The data are plotted in Figure 1. The thick solid line is the money market rate, the thin solid line the government bond yield, the dotted line the short-term loan rate and the broken line the long-term loan rate. The graphs reveal that the short-term loan rate moves closely with the money market rate in all countries. The long-term loan rate moves closely with the 10 The movements of the German long-term lending rate to enterprises and the German long-term mortgage rate are almost identical. In the overlapping period November 1996 till November 2002 the correlation between the 8

9 government bond yield in Germany, but appears to be driven rather by the money market rate in France, Italy and Spain. Substantial differences emerge for the level of loan rates. Most notably, the mark-up of loan rates over capital market rates is much higher in Germany than in France, Italy and Spain. Figure 1: Business lending rates and capital market rates Germany France Italy Spain Note: The thick solid line is the money market rate, the thin solid line the government bond yield, the dotted line the short-term loan rate and the broken line the long-term loan rate.a detailed description of the data can be found in Appendix-Table 1. two series is On average the business lending rate is 0.55 percentage points higher than the mortgage rate. 9

10 4. Empirical Analysis Error-correction models The analysis of money market rate pass-through to short-term and long-term loan rates is based on simple error-correction models of the form: (1) slrt = γ ( slrt 1 mmrt 1 α) + δ mmrt + ε t (2) llrt = γ ( lltt 1 βmmrt 1 (1 β ) gbyt 1 α) + δ1 mmrt + δ 2 gbyt + ε t slr and llr are respectively the short-term and the long-term loan rate, mmr is the money market rate and gby is the government bond yield. is the first difference operator. The formulation of equations (1) and (2) implies that the short-term loan rate is assumed to be set as a mark-up over the money market rate in the long-run. Since in France, Italy and Spain a considerable share of loan contracts is at variable rates (see Appendix-Table 1), I allow the money market rate also to enter the long-run solution for the long-term loan rate, which I model as a weighted average of the money market rate and the government bond yield with the weights being endogenously determined by the data. Equations (1) and (2) were estimated jointly by OLS for all countries in order to be able to test the significance of cross-country differences in pass-through. Table 1 reports the estimation results for the full sample period January 1995 till November I report coefficient estimates with standard errors in parentheses, the adjusted coefficient of 2 determination R and the Durbin-Watson statistic (DW). I also report the Chow test statistic for the test of a structural break in the estimated relationships in January 1999, the start of EMU. Probability values for the Chow-test are reported in parentheses. The results suggest that there are substantial cross-country differences both in the long-run as well as in the short-run dynamics of loan rates. For short-term lending rates I find that the error-correction coefficient (γ ) is significantly smaller than zero at the 1% level in all 10

11 countries, suggesting that short-term loan rates are in the long-run linked to money market rates. The impact coefficient (δ ) is also significant at the 1% level in every country. Errorcorrection and impact are much stronger in Spain than in the other three countries. For long-term loan rates, I find that the money market rate gets a much higher weight in the long-run solution for the long-term loan rate in France (0.55), Italy (0.85) and Spain (0.76) than in Germany (0.12). The error-correction coefficient is in all countries significant at the 1% level. Error-correction is again much stronger in Spain than in the other three countries. The impact of a change in the money market rate ( δ 1 ) is significant at the 5% level in Italy and Spain, and insignificant in Germany and France. The impact of a change in the government bond yield ( δ 2 ) is very strong in Germany and insignificant in the other three countries. These finding suggest that long-term loan rates in Germany are mainly determined by the government bond yield, while long rates in Italy and Spain are mainly determined by the money market rate. France appears to be an intermediate case. There are also notable differences in the estimated long-run mark-up of short-term and longterm loan rates over capital market rates. For example, the long-run mark-up of the short-term loan rate over the money market is in Germany five times a high as in Spain. Theses differences are remarkable, but since I focus on pass-through a closer investigation of the causes of these differences is beyond the scope of this paper. The Chow-test statistics suggest that there is strong evidence of a structural break in January 1999 for both loan rates in Germany and France and for the short-term loan rate in Italy. In order to assess how the relationship between loan rates and capital market rates has changed since the introduction of the euro I re-estimate the error-correction models over the EMU subsample January 1999 till November This sub-sample comprises 47 observations, which is sufficient for time series analysis. The results are reported in Table 2. I find that the errorcorrection and the impact coefficient for short-term loan rates in France are substantially larger over the EMU sub-sample than over the full sample. For Italy both coefficients are now also somewhat larger, for Spain and Germany the sub-sample estimates of the error-correction coefficient is larger while the estimates of the impact coefficient are somewhat smaller. 11

12 Table 1: Error-correction models for the short-term and long-term loan rates, Sample 1995:1-2002:11 Short-term loan rates Long-term loan rates α µ δ 2 R DW Germany (0.142) (021) (051) France (044) (028) (079) Italy (048) Spain (042) (011) (08) (022) (095) Chow- Test 4.93 (003) 4.59 (005) 4.75 (004) 1.63 (0.19) α β µ (048) (0.325) (0.142) 23 (049) (039) (006) (0.141) 0.76 (06) -085 (052) (033) -05 (046) (064) 2 δ 1 δ 2 R 032 (056) 059 (061) 032 (087) ) (039) ) 079 (098) (082) DW Chow- Test 5.46 (000) 2.11 (07) 1.13 (0.35) 0.79 (0.56) Table 2: Error-correction models for the short-term and long-term loan rates, Sample 1999:1-2002:11 Short-term loan rates Long-term loan rates α µ δ 2 R DW Germany (0.161) (024) (058) France (0.413) (0.114) (0.145) Italy (040) Spain (048) (022) (0.130) (052) (0.174) α β µ (067) 161 (075) 174 (0.141) 264 (0.106) -057 (094) (0.195) (0.141) (0.163) -009 (056) -006 (079) (0.108) (095) 2 δ 1 δ 2 R -018 (056) (0.155) (0.165) (0.191) (038) (0.141) (0.126) 077 (0.135) DW

13 Over the EMU sub-sample, the weight of the money market rate in the long-run solution for the long-term loan rate is almost identical in France, Italy and Spain at around 0.75, while it is zero in Germany. Error-correction has strengthened in France and Italy and slightly weakened in Germany and Spain. The impact of a change in the money market rate has strongly increased in France, Italy and Spain, while it is essentially zero in Germany. A change in the government bond yield has a significant impact effect on long-term loan rates only in Germany. It appears therefore that the direct effect of a change in money market rates on long-term loan rates has become stronger in France, Italy and Spain, but weaker in Germany. Pass-through simulation Based on the estimated error-correction models we can now simulate the pass-through of a change in the money market rate. According to the Rational Expectations Hypothesis of the Term Structure (REHTS) 11, long-term capital market interest rates should equal the average of future expected short-term capital market interest rates plus a term premium: t T 1 gby = α + 1 T E mmr + v. T is the maturity of the underlying bond, E is the rational i= 0 t t+ i t expectations operator, α is constant term-premium and v is a white noise error-term. It can be shown that response of the long-term bond yield to a change in the short-term money market rate is given by 12 : gby t+ 1 = 1 T mmrt T ( Et+ 1mmrt + i Etmmrt + i ) + vt+ 1. T 1 i= 1 1+ The response of the bond yield is given by the small direct effect of the change in the money market rate (first term) plus the revisions of expectations (second term). This implies that a change in money market rates has a measurable effect on bond yields only if it was not anticipated. For the analysis of money market rate pass-through to long-term loan rates we therefore have to assume a specific path for money market rates. Following comparative studies of monetary transmission in large scale macroeconometric models I simulate an unexpected 100 basis 11 Shiller (1990) provides a comprehensive survey of the literature on the REHTS. 13

14 points increase in the money market rate maintained for two years. Bond yields are assumed to move according to the REHTS. This means that the bond yield increases by 100*(24/T) in the period of the money market rate increase and then falls by 100*(1/T) in each month until money market rates return to baseline. The simulation is performed both for the full sample and for the EMU sub-sample. Figure 2 displays the impulse responses for the full sample with 2 standard error confidence bounds 13. In the same graph I plot in bold the impulse responses for the EMU sub-sample in order to see whether the impulse responses have changed significantly. I find that pass-through to loan rates in France and Italy, both short-term and long-term, is significantly faster over the EMU sub-sample than over the full sample. Pass-through in Spain does not appear to have changed significantly. In Germany, the pass-through of money market rates to short-term loan rates has not changed significantly, while pass-through to long-term loan rates has become significantly slower. This finding for Germany contrasts with our considerations in section 2, which suggest that, if anything, pass-through should become faster under EMU. Kato et al. (1999) develop a loan market model where the speed of pass-through depends on the health of the banking sector. The model predicts that pass-through will slow down and the effectiveness of monetary policy be weakened if the health of the banking sector deteriorates. They show that this hypothesis is supported by evidence from Japanese loan rates. A potential explanation for our finding is therefore that pass-through in Germany has become slower because of increasing problems in the German banking sector in recent years (Deutsch Bundesbank, 2002). A proper assessment of this hypothesis is, however, beyond the scope of this paper. In the next step I will test whether the differences between the country impulse responses are statistically significant and whether the differences have become significantly smaller since the introduction of the euro in January For each country pair I calculate both for the full sample and for the EMU sub-sample the difference between the impulse responses shown in Figure For an analytical derivation of this result see Nautz and Wolters (1999). 14

15 Figure 3 shows the differences in pass-through for the full sample period in a two standard error confidence band 14. The graphs suggest that over the full sample period significant crosscountry differences in interest rate pass-through prevail. Only the difference between the short-term loan rate impulse responses in Germany and France and the long-term loan rate impulse responses in Italy and Spain are not significantly different. Loan rates in Italy and Spain appear to adjust significantly faster than loan rates in France and Germany. The simulation results for EMU sub-sample are shown in Figure 3. The graphs reveal that lending rates in Germany, both short-term and long-term, adjust significantly slower than lending rates in France, Italy and Spain. Short-term loan rates in Italy are also found to be more sluggish than short-term lending rates in France and Spain. The results for money market rate pass-through to long-term lending rates are more clear-cut. The adjustment of long-term loan rates to a change in money market rates is very similar for France, Italy and Spain and the impulse responses are not significantly different. In Germany, on the other hand, a change in money market rates has a very small effect on long-term loan rates because pass-through is dominated by the transmission via the term structure. These findings suggest that pass-through has become more similar in France, Italy and Spain. Germany appears to be a special case with a slower speed of pass-through in both short-term and long-term loan rates. Since Germany is the largest economy in the euro area, these differences in interest rate pass-through may be a source of asymmetric monetary transmission in the euro area. 13 Confidence bounds were calculated based on a standard Monte Carlo procedure. 14 Confidence bounds were again calculated based on standard Monte Carlo simulations 15

16 Figure 2: Pass-through in euro area business lending rates Short-term lending rate Long-term lending rate Germany France Italy Spain

17 Figure 3: Differences in pass-through in euro area lending rates, Sample Short-term lending rate Long-term lending rate Germany France Germany Italy Germany Spain France Italy France Spain Italy Spain

18 Figure 4: Differences in pass-through in euro area lending rates, Sample Short-term lending rate Long-term lending rate Germany France Germany Italy Germany Spain France Italy France Spain Italy Spain

19 5. Conclusions The evidence on monetary transmission in the euro area suggests that monetary policy affects real activity mainly via its effect on business investment and that the classic interest rate channel plays a dominant role in the euro area countries. Since bank loans account for over 90% of credit to the private sector in the euro area, this implies that the pass-through of policy rates to business lending rates is an important link in the monetary transmission process in the euro area. In this paper I analyse the pass-through of money market rates to short-term and long-term business loan rates in the four largest euro area countries Germany, France, Italy and Spain. The paper contributes to the literature in two ways. First, for the first time it is explicitly tested whether differences in retail rate pass-through across countries are statistically significant. Second, I perform a first test of the effect of the start of EMU on the monetary transmission process in euro area countries by testing statistically whether interest rate passthrough has become faster and more similar across countries. The main empirical findings are that pass-through has become faster in France and Italy, but slower in Germany. An explanation for the slowdown in pass-through in Germany may be the increasing problems in the German banking sector in recent years. As regards cross-country differences in pass-through, I find that German lending rates adjust slower than lending rates in the other large euro area countries, while pass-through in French, Italian and Spanish long-term loan rates is not significantly different over the EMU sub-sample. These differences in interest rate pass-through between Germany on one side and France, Italy and Spain on the other side suggest that monetary transmission in the euro area via the direct interest rate channel is asymmetric. 19

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24 Appendix Appendix-Table 1: Loan rates in euro area countries Short-term loan rate Long-term loan rate France Germany Italy Spain Rate on new discounts, overdrafts and short-term loans to enterprises; Source: ECB Rate on new large wholesale current account credit (EUR 0.5 million up to EUR 2.5 million) to enterprises; Source: ECB Rate on loans to enterprises with a maturity of up to 18 months; Source: ECB Rate on new business loans (monthly reviewable); Source: ECB Average rate on new adjustable and fixed rate medium and long term loans to enterprises; Source: ECB Rate on new long-term loans to enterprises (EUR 0.5 million up to 5 million) and self-employed with a maturity over 4 years; before November 1996 rate on new fixed rate mortgage loans (5 years maturity); Source: ECB Average adjustable and fixed rate on new medium and long term loans to enterprises (over 18 months maturity); Source: ECB Credit accounts over 1 year / up to 3 years; Source: ECB 24