Synchronous but Dissimilar: Heterogeneity in the Bank Lending Channel Across the Euro Area

Summary

This study investigates how monetary policy is transmitted to bank lending in euro area countries and whether there are differences across countries. The findings suggest that the peak effects consistently occur within 12 to 18 months after monetary policy actions. However, the size of the effects varies considerably across countries, and the effects are asymmetric as expansionary monetary policy impacts are larger. We find that these results have been stable over the past several years.

Highlights

Monetary policy effects have a time lag 
How fast and how strongly monetary policy affects important variables in the economy is subject to considerable uncertainty.

Transmission varies across countries 
The transmission of monetary policy to bank lending is synchronous across euro area countries with effects peaking around 12 to 18 months, but impacts differ markedly in terms of magnitude. Moreover, expansionary monetary policy affects bank lending more strongly than contractionary monetary policy.

Why it matters 
Policy makers need timely information on the dynamic effect of monetary policy on macroeconomic variables. Our findings suggest that transmission of monetary policy actions to bank lending is countryspecific, asymmetric and stable over the past several years.