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Central bank rates, market rates and retail bank rates in the euro area in the context of the recent crisis

Author

Listed:
  • N. Cordemans

    (National Bank of Belgium, Research Department)

  • M. de Sola Perea

    (National Bank of Belgium, Research Department)

Abstract
The article addresses recent trends in the financing costs of various public and private sectors in the euro area and Belgium. It pays particular attention to the monetary policy transmission process via the interest rate channel during the crisis and notably examines the extent to which the process was affected by tensions on sovereign debt markets. Overall, it appears that the interest rate cuts orchestrated by the ECB and the adoption of numerous non-standard monetary policy measures made it possible to maintain an effective transmission of monetary policy in the euro area during the crisis. Public debt market tension has had some impact on market borrowing costs for non-financial corporations, but this impact was relatively limited at the aggregate level. Because of its direct involvement in public sector financing, the financial sector was significantly affected, and while a portion of the impact was passed on in the rates offered to households and the non-financial private sector, it appears that banks’ transmission of monetary policy was not profoundly affected in the euro area overall. Similar conclusions apply to Belgium, where it does however appear that mortgage loan rates were somewhat influenced by the rise in sovereign debt yields. In the countries bearing the brunt of the crisis, companies and individuals nevertheless saw their borrowing costs rise more significantly. In general, it appears that at the national level, private sector financing costs were amply influenced by those of the public sector, although some decoupling was observed, basically at the level of the non-financial sector. These results are reassuring in that they demonstrate the relative effectiveness of the monetary policy measures adopted during the crisis and the relatively limited repercussions of the sovereign debt crisis on the rest of the euro area economy. Still, in the countries most affected by the crisis, the private sector has been hit hard by higher public sector financing costs and fiscal consolidation measures in those countries should therefore remain a top priority.

Suggested Citation

  • N. Cordemans & M. de Sola Perea, 2011. "Central bank rates, market rates and retail bank rates in the euro area in the context of the recent crisis," Economic Review, National Bank of Belgium, issue i, pages 27-52, June.
    • Handle: RePEc:nbb:ecrart:y:2011:m:june:i:i:p:27-52
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    References listed on IDEAS

    as
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    2. Kapuściński, Mariusz & Stanisławska, Ewa, 2018. "Measuring bank funding costs in the analysis of interest rate pass-through: Evidence from Poland," Economic Modelling, Elsevier, vol. 70(C), pages 288-300.
    3. Jérôme Creel & Paul Hubert & Mathilde Viennot, 2016. "The effect of ECB monetary policies on interest rates and volumes," Applied Economics, Taylor & Francis Journals, vol. 48(47), pages 4477-4501, October.
    4. repec:hal:wpspec:info:hdl:2441/f6h8764enu2lskk9p4sg18u8h is not listed on IDEAS
    5. Andries, Natalia & Billon, Steve, 2016. "Retail bank interest rate pass-through in the euro area: An empirical survey," Economic Systems, Elsevier, vol. 40(1), pages 170-194.
    6. A. Bruggeman & Ch. Van Nieuwenhuyze, 2013. "Size and dynamics of debt positions in Belgium and in the euro area," Economic Review, National Bank of Belgium, issue i, pages 57-77, June.
    7. Jérôme Creel & Mathilde Viennot & Paul Hubert, 2013. "Assessing the Interest Rate and Bank Lending Channels of ECB Monetary Policies," Working Papers hal-01064261, HAL.
    8. repec:hal:spmain:info:hdl:2441/f6h8764enu2lskk9p4sg18u8h is not listed on IDEAS
    9. repec:hal:spmain:info:hdl:2441/1plbkk1i83dqp9vh69uffirf is not listed on IDEAS
    10. M. de Sola Perea & Ch. Van Nieuwenhuyze, 2014. "Financial integration and fragmentation in the euro area," Economic Review, National Bank of Belgium, issue i, pages 99-125, June.
    11. repec:spo:wpecon:info:hdl:2441/f6h8764enu2lskk9p4sg18u8h is not listed on IDEAS
    12. M. Kasongo Kashama, 2014. "The how and why of a negative rate for the deposit facility," Economic Review, National Bank of Belgium, issue ii, pages 102-111, September.
    13. repec:spo:wpmain:info:hdl:2441/1plbkk1i83dqp9vh69uffirf is not listed on IDEAS
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    15. Özgür ERSİN & Melike BİLDİRİCİ, 2017. "A Nonlinear Analysis of Monetary Policy with Dominance Indices in Turkey: MS-VAR Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 22-46, December.
    16. repec:spo:wpmain:info:hdl:2441/f6h8764enu2lskk9p4sg18u8h is not listed on IDEAS
    17. J. Boeckx, 2012. "What is the role played by the Eurosystem during the financial crisis ?," Economic Review, National Bank of Belgium, issue ii, pages 7-28, September.

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    More about this item

    Keywords

    monetary policy; financial & economic crisis; sovereign debt crisis; financing costs; market interest rates; bank retail interest rates; vector error correction model; cointegration; shortterm interest rates; long-term interest rates; Belgium; euro area;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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