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Davide Malacrino
- 26 September 2024
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 6, 2024Details
- Abstract
- The increase in policy rates has translated into higher interest rates on deposits in both the euro area and the United States, albeit more so in the euro area despite a smaller increase in the policy rate and a lower starting point. As in previous hiking cycles, the increase in remuneration has been considerably smaller for overnight deposits than for other assets, triggering a rebalancing of money holders’ portfolios in both economies. As policy rates increased, credit to firms and households fell more sharply in the euro area than in the United States. The pass-through to lending rates was rather similar. Yet, the greater prevalence of fixed rate mortgages in the United States entailed a slower transmission to rates on existing mortgages. The developments in deposits and loans were mirrored in broad money growth, with high US deposit volumes reflecting the much larger pandemic-related asset purchases by the Fed, and with the moderation in lending volumes having been the main driver of the weakening in monetary dynamics in the euro area, whereas in the US, other sources were the initial drivers, with bank lending only contributing later.
- JEL Code
- E40 : Macroeconomics and Monetary Economics→Money and Interest Rates→General
E41 : Macroeconomics and Monetary Economics→Money and Interest Rates→Demand for Money
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
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
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions