This paper examines the impact of the June 2014 switch to negative interest rates (NIRs) by the European Central Bank (ECB) on the operation of the eurozone interest-rate pass-through (IRPT) mechanism. We focus on the relationship between major central-bank policy rates and selected money-market rates. That link is identified as the first stage of the IRPT mechanism and its dynamics are analysed using Granger causality and cointegration techniques for the time period January 2000–June 2017. Our empirical findings indicate a feedback relationship between the ECB policy and the money-market rates in the period prior to June 2014, but that relationship is non-operative when considering only the period of NIRs.
Yannis Panagopoulos and Ekaterini Tsouma
Yannis Panagopoulos and Aristotelis Spiliotis
This chapter extends the horizontalist–structuralist debate about the money-supply process, taking into consideration the restrictions that emerged during the Basel III agreements. A two-step approach is proposed: first, the existence of a new ‘equity credit multiplier’ is examined, that is, the importance of banks’ equity in their lending process. Then, this ‘equity effect’ is embedded into a multivariate loan model. By applying this two-step approach to the euro area, the chapter concludes that there are strong empirical indications of money endogeneity in the system with a reversed ‘equity credit multiplier’.