The pass-through of past monetary policy tightening to financing conditions

Eco Notepad, post no. 354. Both the US Fed and the ECB have hiked their key interest rates in 2022-2023 at an unprecedented pace. The estimated pass-through of this tightening to financial conditions is similar in the euro area and the US, and comparable to previous cycles: almost 95% of the total response of financing conditions occurs within 12 months. However, the ultimate transmission from financing conditions to inflation comes about with longer and more variable lags.