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Does the deposit channel of monetary policy work in a high-interest rate environment?

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  • Caetité, Alex Nery
  • Sousa, Almir Ferreira de
  • Savoia, José Roberto Ferreira
  • Bucchi, Wadico Waldir
  • Garcia, Fabio Gallo

Abstract

This paper aims to test the hypothesis that monetary policy changes affect bank deposits in an environment with high-interest rates. We perform a comprehensive analysis of bank statistics on deposits, credit operations, and bank accounting data between September 1999 and June 2018. We use Brazilian Central Bank statistics to run our tests. Our results show that Brazilian banks increase their spread on deposits in response to monetary policy actions, which reduces their funding due to an outflow of deposits. As a consequence, they grant fewer loans and increase credit restrictions. We also observe evidence that these effects vary with the degree of concentration on deposits observed locally and specifically in banks, and this phenomenon is more intense in regions with high concentration levels. Therefore, our results suggest a positive answer to the question posed in the title, that is, the deposit channel of monetary policy works in a high-interest rate environment, such as Brazil.

Suggested Citation

  • Caetité, Alex Nery & Sousa, Almir Ferreira de & Savoia, José Roberto Ferreira & Bucchi, Wadico Waldir & Garcia, Fabio Gallo, 2022. "Does the deposit channel of monetary policy work in a high-interest rate environment?," Journal of Banking & Finance, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:jbfina:v:145:y:2022:i:c:s0378426622002199
    DOI: 10.1016/j.jbankfin.2022.106639
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    More about this item

    Keywords

    Financial Markets; Bank deposits; Bank lending; Monetary Policy; Central Bank;
    All these keywords.

    JEL classification:

    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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