Expected versus Unexpected Monetary Policy Impulses and Interest Rate Pass-through in Eurozone Retail Banking

This paper follows up on recent studies of the Eurozone interest rate pass-through. Using a generalized empirical approach that allows for a variety of different specifications of the pass-through, including asymmetric adjustment, the role of interest rate expectations, proxied by EURIBOR futures, in determining retail banking product pricing is explored. It is shown that the pass-through is faster when monetary policy changes are correctly anticipated. However, this result is limited to the loan market and here more pronounced for positive interest rate shocks, while particularly deposit rate are found to be rigid, suggesting an important role of competitive banking markets for the pass-through process. Overall, our results show that a well-communicated monetary policy is important for a speedier and a more homogenous passthrough and thus for a more effective monetary policy in the Eurozone. JEL Classification Numbers: E43, E52, E58, F36