Imperfect pass-through to deposit rates and monetary policy transmission

Alberto Polo

No 933, Bank of England working papers from 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.

Keywords: Monetary policy transmission; deposit rates; banks; market power (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2021-07-30
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-isf, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0933

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