The paper evaluates the soundness of a methodology widely used to forecast the cost of credit to non-financial corporations, based on the long-run relationship between lending rates and official reference rates. These projections are compared, for Italy and the euro area, with those obtained through a more sophisticated approach that delivers a range of alternative forecasts using a much larger number of determinants (so-called thick modelling approach).
The thick modelling approach shows that the projections of bank lending rates to non-financial corporations based predominantly on the long-run relationship with official rates are characterised at the current juncture by large uncertainty and tend to be in the lower part of the forecast range. Including among the determinants of corporate rates credit risk, which has increased in the current phase of monetary tightening and could worsen further, results in particularly high loan cost projections.
