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Sarah Holton

Economics

Division

Prices & Costs

Current Position

Head of Division

Fields of interest

Financial Economics,Macroeconomics and Monetary Economics

Email

sarah.holton@ecb.europa.eu

Education
2015

PhD in Economics, University College Dublin, Ireland

2007

MEconSc in International Economics, Erasmus University Rotterdam, the Netherlands

2005

BA in Economics and Business, Trinity College Dublin, Ireland

Professional experience
2019-2021

Deputy Head of Monetary Policy, Central Bank of Ireland

2015-2019

Economist / Principal Economist, ECB

2007-2015

Senior Economist, Central Bank of Ireland

21 August 2024
WORKING PAPER SERIES - No. 2975
Details
Abstract
Using a novel dataset linking firm level data from the Survey on Access to Finance of Enterprises (SAFE) and bank level data from the Bank Lending Survey (BLS), we explore how changes in credit standards pass through to firms at a granular level. We find that tighter credit standards decrease loan availability reported by firms, increase the likelihood they report access to finance as the worst problem and decrease their investment. After controlling for country-sector-time fixed effects that capture cyclical macroeconomic conditions, effects only remain for firms that need finance. Moreover, we find that a more diversified funding base insulates firms from the negative impacts of tighter credit standards on availability of bank loans and access to finance, although there is little evidence of such an effect forinvestment. Effects are asymmetric, with stronger impacts recorded for a tightening than an easing. Our results underscore the importance of demand conditions when interpreting the credit conditions and we thus propose a new indicator of demand adjusted credit standards at a euro area level, which can be used to analyse broader credit dynamics.
JEL Code
D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
23 May 2024
THE ECB BLOG
Details
JEL Code
E20 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→General
E24 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E37 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Forecasting and Simulation: Models and Applications
24 March 2022
RESEARCH BULLETIN - No. 93
Details
Abstract
A survey among former ECB policymakers about the Bank’s monetary policy communication provides broad support for recent innovations in communication practices. It suggests that communication with expert audiences is generally adequate. Nevertheless, it highlights room for improvement along several dimensions, in particular in communication with the wider public.
JEL Code
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
17 December 2021
WORKING PAPER SERIES - No. 2627
Details
Abstract
This paper reports the results of a survey of former members of the Governing Council of the European Central Bank, which sought their views on monetary policy communication practices, the related challenges and the road ahead. Pronounced differences across the respondent groups are rare, suggesting that there is broad consensus on the various issues. Respondents view enhancing credibility and trust as the most important objective of central bank communication. They judge communication with financial markets and experts as extremely important and adequate, but see substantial room for improvement in the communication with the general public. The central bank objective is widely seen as the most important topic for monetary policy communication, and several respondents perceived a need for clarification of the ECB’s inflation aim, citing the ambiguity of the “below, but close to, 2%” formulation that was in place at the time of the survey.
JEL Code
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
21 September 2021
OCCASIONAL PAPER SERIES - No. 274
Details
Abstract
This paper examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public’s rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically and continues to evolve. This paper outlines how better communication, including greater engagement with the wider public, could help boost people’s understanding of and trust in the Eurosystem.
JEL Code
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
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
4 November 2019
WORKING PAPER SERIES - No. 2326
Details
Abstract
We empirically analyse the relationship between longer term central bank liquidity support and banks’ balance sheet ratios, using difference-in-differences panel regressions and propensity score matching on a large sample of banks in the euro area. The research question is whether the liquidity operations, which were introduced to prevent disorderly deleveraging, can also be linked to unintended changes in banks’ funding policies and asset allocations. The results show that unconditional and conditional refinancing operations are associated with different developments on banks’ balance sheets. Unconditional longer-term refinancing operations went together with higher maturity transformation by banks in stressed countries, and also more carry trades, i.e. banks borrowing more while increasing their holdings of government bonds. In contrast, refinancing operations that were conditional on banks’ lending were not associated with such carry trades, highlighting the benefits of conditionality attached to long-term refinancing operations.
JEL Code
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
7 June 2019
WORKING PAPER SERIES - No. 2289
Details
Abstract
Exploiting confidential data from the euro area, we show that sound banks pass on negative rates to their corporate depositors without experiencing a contraction in funding and that the degree of pass-through becomes stronger as policy rates move deeper into negative territory. The negative interest rate policy provides stimulus to the economy through firms’ asset rebalancing. Firms with high cash-holdings linked to banks charging negative rates increase their investment and decrease their cash-holdings to avoid the costs associated with negative rates. Overall, our results challenge the common view that conventional monetary policy becomes ineffective at the zero lower bound.
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
D22 : Microeconomics→Production and Organizations→Firm Behavior: Empirical Analysis
D25 : Microeconomics→Production and Organizations
Network
Research Task Force (RTF)
3 May 2019
OCCASIONAL PAPER SERIES - No. 222
Details
Abstract
As the euro area has a predominantly bank-based financial system, changes in the composition and strength of banks’ balance sheets can have very sizeable implications for the transmission of monetary policy. This paper provides an overview of developments in banks’ balance sheets, profitability and risk-bearing capacity and analyses their relevance for monetary policy. We show that, while the transmission of standard policy interest rate cuts to firms and households was diminished during the crisis, in a context of financial market stress and weak bank balance sheets, unconventional monetary policy measures have helped to restore monetary policy transmission and pass-through to interest rates. We also document the extent to which these non-standard measures were successful in stimulating lending and which bank business models were more strongly affected. Finally, we show that the estimated impact of recent monetary policy measures on bank profitability does not appear to be particularly strong when all the effects on the macroeconomy and asset quality are taken into account
JEL Code
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
20 November 2018
WORKING PAPER SERIES - No. 2202
Details
Abstract
Do borrowers demand less credit from banks with weak balance sheet positions? To answer this question we use novel bank-specific survey data matched with confidential balance sheet information on a large set of euro area banks. We find that, following a conventional monetary policy shock, bank balance sheet strength influences not only credit supply but also credit demand. The resilience of lenders plays an important role for firms when selecting whom to borrow from. We also assess the impact on credit origination of unconventional monetary policies using survey responses on the exposure of individual banks to quantitative easing and negative interest rate policies. We find that both policies do stimulate loan supply even after fully controlling for bank-specific demand, borrower quality, and balance sheet strength.
JEL Code
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
Network
Research Task Force (RTF)
4 August 2017
WORKING PAPER SERIES - No. 2092
Details
Abstract
The post-2008 period in the euro area was characterised by sharp dispersion in borrowing costs faced by firms, across both countries and firm types. This dispersion was an important manifestation of the “financial fragmentation” which hampered the smooth transmission of accommodative monetary policy. Using bank level data from 2007 to 2015, we directly measure the borrowing cost dispersion across firm types by calculating the difference in the interest rate charged by the same bank in the same month for loans to small and large firms (the “Small Firm Financing Premium”, SFFP). We assess the role played by both bank and macroeconomic factors in explaining the variation in the SFFP across countries and through time. We provide evidence that bank market power, sovereign bond holdings and balance sheet weaknesses led to disproportionate borrowing cost increases for small firms, and exacerbated the impact of a weak macroeconomy during this period.
JEL Code
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
18 September 2015
WORKING PAPER SERIES - No. 1850
Details
Abstract
The financial crisis has been characterised by fragmentation in the transmission of monetary policy, reflected in high dispersion in the cost of bank finance for euro area firms. Using micro-level bank data across a number of euro area countries, we identify individual bank balance sheet characteristics that contributed to this fragmentation. Interest rate pass-through heterogeneity is estimated using an error correction framework, which captures banks' funding constraints and balance sheet structures. Results show incomplete pass-through of changes in money market rates targeted by the central bank to firms' lending rates, with increases in sovereign bond yields affecting the cost of finance for firms, particularly in stressed countries. Individual bank characteristics have an effect on pass-through during the crisis, even after controlling for changes in macroeconomic conditions. The effect is greatest when looking at characteristics that capture bank funding difficulties, suggesting that a recovery in banks' funding capacities is an important element in reducing fragmentation in the transmission of monetary policy.
JEL Code
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
G01 : Financial Economics→General→Financial Crises
G20 : Financial Economics→Financial Institutions and Services→General
E43 : Macroeconomics and Monetary Economics→Money and Interest Rates→Interest Rates: Determination, Term Structure, and Effects
2021
Journal of Financial Economics
Is there a zero lower bound? The effects of negative policy rates on banks and firms
  • C. Altavilla, L. Burlon, M. Giannetti and S. Holton
2021
Journal of Money, Credit and Banking
Credit supply and demand in unconventional times
  • C. Altavilla, M. Boucinha, S. Holton and S. Ongena
2021
International Journal of Finance and Economics
Sources of the small firm financing premium: evidence from euro area banks
  • S. Holton and F. McCann
2021
Applied Economics
The impact of central bank liquidity on banks' sovereign exposures
  • L. de Haan, S. Holton and J.W. van den End
2019
VoxEU article, 08 November 2019
  • C. Altavilla, L. Burlon, M. Giannetti and S. Holton
2018
Journal of Banking and Finance
Interest rate pass-through since the euro area crisis
  • S. Holton and C. Rodriguez d'Acri
2016
Access to Bank Credit and SME Financing
The small firm financing premium in Europe: where and when do small firms pay the most?
  • Sarah Holton and Fergal McCann
2014
Applied Economics
Firm credit in the euro area: a tale of three crises
  • S. Holton, M. Lawless and F. McCann
2013
National Institute Economic Review
SME Financing Conditions in Europe: Credit Crunch or Fundamentals?
  • Sarah Holton, Martina Lawless and Fergal McCann
2012
VoxEU Article, 04 March 2012
  • Sarah Holton, Martina Lawless and Fergal McCann
2011
Kyklos: International Review for Social Sciences
The more the merrier? Natural resource fragmentation and the wealth of nations
  • B. Crutzen and S. Holton