Using a Markov-switching VAR with endogenous transition probabilities, we analyse what has triggered the interest rate pass-through impairment for Italy, Ireland, Spain and Portugal. We find that global risk factors have contributed to higher lending rates in Italy and Spain, problems in the banking sector help to explain the impairment in Spain, and fiscal problems and contagion effects have contributed in Italy and Ireland. We also find that the ECB's unconventional monetary policy announcements have had temporary positive effects in Italy. Due to the zero lower bound these findings are amplified if EONIA is used as a measure of the policy rate. We did not detect changes in the monetary policy transmission for Portugal.
Appendix - Modelling the time-variation in euro area lending spreads