2012年-CEPS欧洲政策研究中心_Financial_Structure_and_its_Impact_on_the_Convergence_of_Interest_Rate_Pass_42页_922kb

Summary of "Financial Structure and Its Impact on the Convergence of Interest Rate Pass-Through in Europe: A Time-Varying Interest Rate Pass-Through Model"

Core Content

This paper investigates the impact of financial structure on the convergence of interest rate pass-through in European economies, particularly within the context of the European Monetary Union (EMU). It introduces a time-varying interest rate pass-through model to analyze how differences in financial structures affect the transmission of monetary policy across countries.

Main Viewpoints

• Financial Structure and Monetary Transmission: The study highlights that financial structure plays a crucial role in the convergence of monetary policy transmission mechanisms across European countries. Differences in financial structures are not eliminated by the introduction of the common currency and can lead to asymmetries in how monetary policy is transmitted.

• Convergence Hypotheses: Three key hypotheses are tested:

  1. Hypothesis 1: There is convergence in the transmission mechanism within EMU member states.
  2. Hypothesis 2: Countries with similar financial structures will exhibit faster convergence than those with different structures.
  3. Hypothesis 3: The introduction of the Euro will not significantly speed up convergence due to the rigidity of financial structures.

• Model and Methodology: The paper uses a time-varying interest rate pass-through model, which allows for dynamic analysis of how monetary policy impacts bank lending rates. The model is based on Cottarelli & Kourelis (1994) and incorporates the dynamics of monetary integration, using rolling regression to assess time variation in the pass-through effects.

• Role of Financial Structure: Financial structure variables, such as legal systems and capital market development, are shown to influence the degree of convergence in interest rate pass-through. The study uses legal family classification and Amable’s financial structure indicators to group countries and assess convergence patterns.

Key Findings

• Convergence in Monetary Transmission: The study finds that there is convergence in the way banks respond to changes in money market rates. This convergence is further enhanced in groups of countries with similar financial structures.

• Impact of Financial Structure: Financial structure has a significant impact on the speed and extent of monetary policy transmission. The convergence of interest rate pass-through is influenced by structural characteristics such as legal origin, capital market development, and institutional investors' share.

• Legal Family Influence: Countries grouped by legal family show different convergence patterns. For example, the French legal family exhibits more divergence in the impact multiplier, while the German legal family shows divergence driven by Austrian developments.

• Amable’s Financial Structure Grouping: Using Amable’s financial structure indicators, the study identifies four groups of countries, each with distinct characteristics in terms of capital market development, ownership structures, and institutional investment. The convergence of pass-through effects is more pronounced within these groups.

• Time-Varying Effects: The analysis shows that convergence in the first three months after a monetary policy shock is significant, and this is further reduced in countries with similar financial structures.

Methodology Overview

• Model Specification: The paper estimates a dynamic model where the change in bank lending rates is influenced by changes in money market and discount rates. The model allows for time-varying pass-through parameters, reflecting the evolving nature of monetary transmission.

• Convergence Analysis: The study employs three methods to assess convergence:

  1. Sigma-Convergence: Measures the decline in dispersion of pass-through multipliers over time.
  2. Cluster Analysis: Groups countries based on financial structure and assesses convergence within these groups.
  3. Panel Regression Analysis: Tests the relationship between financial structure variables and the degree of convergence in monetary transmission.

Conclusion

The paper concludes that financial structure has a significant influence on the convergence of monetary policy transmission in Europe. The results support the idea that countries with similar financial structures converge more quickly in their interest rate pass-through responses. This implies that financial structure should not be ignored when analyzing monetary transmission asymmetries in the Eurozone. The findings also suggest that the introduction of the Euro does not necessarily lead to faster convergence due to the persistence of structural differences.

Key Information

• Author: Wolfgang Schwarzbauer
• Institution: Institute for Advanced Studies (IHS), Vienna
• Date: September 2006 (originally published), reprinted by ENEPRI
• Keywords: Convergence, interest rate pass-through, EMU, financial structure, money and bank interest rates, transmission mechanism
• JEL Classification: E43, G21, E52
• Funding: Austrian Academy of Sciences through the DOC programme
• Data Sources: The analysis uses data from various European countries, with a focus on the period after the introduction of the Euro.