Details Matter: Loan pricing and transmission of monetary policy in the euro area
Massimo Giovannini & co-authors
Does the maturity of the relevant risk-free rate influence the strength of monetary policy pass-through to interest rates on new loans? To address this question, we present novel empirical evidence on lending practices across all euro-area countries, using AnaCredit data covering nearly 7 million new loans issued to nonfinancial corporations in 2022-23. We document substantial variation in (i) the prevalence of fixed- versus floating-rate loans, (ii) rate fixation periods, and (iii) reference rates. This variation results in lending rates being exposed to different segments of the risk-free rate yield curve which, in turn, influence their sensitivity to monetary policy changes. We show that loans linked to shorter-maturity risk-free rates experience more pronounced monetary pass-through. Importantly, this effect is not purely mechanical, as part of the effect is offset by adjustments in the premium, revealing previously less-explored heterogeneity in the pass-through to lending rates.
Details Matter: Loan Pricing and Transmission of Monetary Policy in the Euro Area