A LESS EFFECTIVE MONETARY TRANSMISSION IN THE WAKE OF EUROPEAN MONETARY UNION (EMU)? EVIDENCE FROM LENDING RATES PASS-THROUGH

This paper proposes an approach to search for structural breaks in the wake of EMU, in retail lending rates pass-through. The results of the econometric investigation for Italy and Portugal show that the pass-through on short-term lending is, in contrast with a widely held view, sizeably lower in the post-break period, and well below unity. The recently proposed distinction between monetary policy and cost-of-funds approaches in the pass-through analysis does not yield different breaking points. These findings, which are based on results of cointegrated relations, supports the widely held view of the presence of an enhanced and less heterogeneous monetary transmission across countries. A strengthened relationship lending could atleast partly explain the reduced pass-through in the Italian case.