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Bank competition and the transmission of unconventional monetary policy in the euro area

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  • Barbara Baarsma
  • Melvin Vooren

Abstract

We analyse the relation between bank competition and the transmission of unconventional monetary policy (UMP) for 14 European countries. We estimate an error-correction model to analyse the relation between the pass-through of UMP to long-term commercial interest rates and the level of competitiveness. We estimate this model for three different measures: the Herfindahl Index (HHI), the Boone indicator and the H-statistic. Our results indicate that bank concentration as measured by the HHI is not a good proxy of competitive conditions in the market, whereas the other two measures are more meaningful in this context. The pass-through of UMP is increasing in the degree of bank competition as measured by the Boone indicator and the H-statistic. The relationship between pass-through and the level of market concentration is less well defined, suggesting that competition and market concentration do not go hand in hand in the banking sector.

Suggested Citation

  • Barbara Baarsma & Melvin Vooren, 2018. "Bank competition and the transmission of unconventional monetary policy in the euro area," European Competition Journal, Taylor & Francis Journals, vol. 14(1), pages 174-193, January.
    • Handle: RePEc:taf:recjxx:v:14:y:2018:i:1:p:174-193
    DOI: 10.1080/17441056.2018.1463688
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    Cited by:

    1. Dang, Van Dan & Huynh, Japan, 2022. "Bank funding, market power, and the bank liquidity creation channel of monetary policy," Research in International Business and Finance, Elsevier, vol. 59(C).
    2. Klutse Senanu Kwasi, 2020. "Competitiveness in the European Consolidated Banking Sector After the 2008 Financial Crisis," Review of Economic Perspectives, Sciendo, vol. 20(4), pages 431-444, December.

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