Raising interest rates to fight inflation can backfire by permanently weakening a central bank's control over its own economy.
April 1, 2026
Original Paper
Euroisation and the Bank Lending Channel of Monetary Policy: Evidence from Czechia
SSRN · 6504563
The Takeaway
In open economies, businesses react to high local interest rates by switching to loans in foreign currencies like the Euro. This study shows that this 'euroisation' is asymmetric and doesn't easily reverse, meaning the central bank accidentally drives its own citizens to abandon the national currency for credit.
From the abstract
We show that divergences between Czech and euro-area policy rates reshape the currency composition of corporate lending. Using loan-level data from AnaCredit for 2019–2024, we document that a widening PRIBOR–EURIBOR spread triggers a sharp reallocation toward euro-denominated credit, concentrated in new loans. The effect is asymmetric: strong when the differential widens, but only partially reversible when it narrows. It is driven mainly by large, less-capitalised banks and by larger, lower-leve