Assessing the interest rate pass-through in Europe: a cross-country comparison.

This thesis empirically investigates the interest rate pass-through from the EONIA to retail bank rates for eleven European countries. Comparing the pre-crisis, the crisis and the post-crisis period, we find that the degree of transmission of monetary policy has changed over time. Moreover, we provide evidence of substantial heterogeneity in the interest rate pass-through both across European countries and interest rate categories. Our results suggest a lack of integration of the European banking system and a partial failure of common market policies supporting financial integration. As a consequence of our results, in a second step, we extend our analysis to consider a number of macroeconomic and financial variables that potentially affect the interest rate pass-through. Thus, we find for instance that an increase in the industrial production index or in the competition inside the banking sector would support the scale of the pass-through whereas a higher country risk premium would contribute to weaken it. In terms of policy implications, our conclusions suggest that more reforms are needed to ensure a more efficient and homogeneous monetary transmission process across Europe.