Monetary policy transmission to bank lending and cross-country heterogeneity in the Euro area
Pietro Grandi  1@  
1 : LEMMA - Université Paris II - Pantheon Assas
Université Paris II - Panthéon-Assas
4 rue Blaise Desgoffe 75006 Paris (France) -  France

Is the transmission of monetary policy to bank lending heterogeneous across Eurozone countries? This paper employs annual data on banks' balance sheets and income statements to test whether the bank lending channel of conventional monetary policy was heterogeneous in the Eurozone over the period 2007-2016. To do so, we follow a simple procedure that allows direct testing of cross-country heterogeneity of monetary transmission by defining a single, bank-specific criterion to select a subsample of banks that are most likely to be sensitive to the bank lending channel. We find robust evidence that the transmission of monetary policy to bank lending was heterogeneous across countries – on average the same 1% policy rate cut leads to a 4.8% increase in lending by banks located in the core against a 2.8% increase for banks located in the periphery. No evidence is instead found in favour of a bank lending channel working for the Eurozone as a whole, highlighting the extent of cross-country heterogeneity in the bank lending channel of monetary policy in the Eurozone. The findings are robust to the contemporaneous effect of unconventional monetary measures and cannot be ascribed to divergence in macroeconomic and financial conditions across country groups.

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