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Credit strikes back: the macroeconomic impact of the 2022-23 ECB monetary tightening and the role of lending rates

Author

Listed:
  • Antonio Maria Conti

    (Bank of Italy)

  • Stefano Neri

    (Bank of Italy)

  • Alessandro Notarpietro

    (Bank of Italy)

Abstract

This paper assesses the transmission of the European Central Bank's (ECB) 2022-23 monetary policy tightening to the euro-area economy, focusing on the cost of credit to non-financial corporations (NFCs). Three results are of particular interest. First, during the 2022-23 tightening cycle, key interest rates increased much more and at an unprecedented pace compared with previous tightening episodes, and the transmission to the credit market was more pronounced. Second, the results of a BVAR model-based analysis show that banks' risk perception is an important factor in explaining the stronger transmission of the 2022-23 monetary policy tightening to the cost of credit compared with previous episodes of monetary policy tightening. Third, simulations based on both BVAR and DSGE models show that the 2022-23 tightening is likely to have a further downward impact on real GDP growth and inflation in 2024. The bank lending channel is identified as a significant contributor to the macroeconomic effects of monetary policy tightening.

Suggested Citation

  • Antonio Maria Conti & Stefano Neri & Alessandro Notarpietro, 2024. "Credit strikes back: the macroeconomic impact of the 2022-23 ECB monetary tightening and the role of lending rates," Questioni di Economia e Finanza (Occasional Papers) 884, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_884_24
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2024-0884/QEF_884_24.pdf
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    More about this item

    Keywords

    monetary policy; bank lending channel; Bayesian VAR models; DSGE models;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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