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Is the ECB Monetary tightening effective? The role of bank funding and asset structure

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  • Matjaž Volk

Abstract

This paper analyses the transmission of the ECB policy rate to bank deposit rates. From June to December 2022, the policy rate increased by 2.5pp, while deposit rates in euro area banks increased only by 0.2pp. The pass-through was not perfect even in the previous cycle between 2005 and 2008, but it was nevertheless much higher. I show that the two main factors behind a sluggish response in deposit rates are the sizable amount of deposits and liquidity in banks’ books. These effects work against ECB’s efforts to restore price stability by tightening monetary policy.

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  • Matjaž Volk, 2025. "Is the ECB Monetary tightening effective? The role of bank funding and asset structure," Applied Economics Letters, Taylor & Francis Journals, vol. 32(4), pages 460-463, February.
    • Handle: RePEc:taf:apeclt:v:32:y:2025:i:4:p:460-463
    DOI: 10.1080/13504851.2023.2275217
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