The transmission of monetary policy in central and east European countries: what is the role of the banks’ market power and efficiency?
The transmission of monetary policy in central and east European countries: what is the role of the banks’ market power and efficiency?

Summary/Abstract: In this article, we analyse the influence of the banks’ market power and efficiency in the transmission of monetary policy in central and eastern European countries. The role of other factors, such as liquidity and capitalisation levels and the size of the bank concerned, has already been studied, but the impact of market power and efficiency levels has not, to our knowledge, been the subject of any study. In this article, we try to shed light on this subject. We measure market power in terms of the Lerner Index, while efficiency scores are determined by the parameter frontier approach. Our results confirm the conclusions of previous studies: higher levels of liquidity and capitalisation and a higher amount of banking assets reduce the repercussions of monetary policy for banks’ lending behaviour. Concerning the market power and efficiency of banks, we show that the more efficient the bank is and the higher market power that it has, the lesser the impact of monetary policy on its lending activity.

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