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Imperfect pass-through to deposit rates and monetary policy transmission

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  • Polo, Alberto

    (Bank of England)

Abstract

I document three salient features of the transmission of monetary policy shocks: imperfect pass-through to deposit rates, impact on credit spreads, and substitution between deposits and other bank liabilities. I develop a monetary model consistent with these facts, where banks have market power on deposits, a duration-mismatched balance sheet, and a dividend-smoothing motive. Deposit demand has a dynamic component, as in the literature on customer markets. A financial friction makes non-deposit funding supply imperfectly elastic. The model indicates that imperfect pass-through to deposit rates is an important source of amplification of monetary policy shocks.

Suggested Citation

  • Polo, Alberto, 2021. "Imperfect pass-through to deposit rates and monetary policy transmission," Bank of England working papers 933, Bank of England.
    • Handle: RePEc:boe:boeewp:0933
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    Cited by:

    1. Kho, Stephen, 2024. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Paper Series 2896, European Central Bank.
    2. Stephen Kho, 2023. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Papers 790, DNB.
    3. Ugochi Emenogu & Brian Peterson, 2022. "Unregulated Lending, Mortgage Regulations and Monetary Policy," Staff Working Papers 22-28, Bank of Canada.

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    More about this item

    Keywords

    Monetary policy transmission; deposit rates; banks; market power;
    All these keywords.

    JEL classification:

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

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