Deposit market concentration and monetary transmission: evidence from the euro area

Stephen Kho

Working Papers from DNB

Abstract: I study the transmission of monetary policy to deposit rates in the euro area with a focus on the role of banking sector concentration. Using a local projections framework with 2003-2022 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to unexpected changes in monetary policy. However, more concentrated domestic banking sectors do pass on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy, which in turn may affect banking sector profitability as well as the macro-economic response to monetary policy.

Keywords: Monetary transmission; deposit rates; market concentration (search for similar items in EconPapers)
JEL-codes: D40 E43 E52 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-com, nep-eec, nep-fdg and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:790

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