Interest Rate Pass-through by U.S. Banks: Macro Implications of Bank Competition

Nobuhiro Abe, Yuto Ishikuro, Koki Nakayama and Yutaro Takano
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Nobuhiro Abe: Bank of Japan
Yuto Ishikuro: Bank of Japan
Koki Nakayama: Bank of Japan
Yutaro Takano: Bank of Japan

No 25-E-9, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Do heterogeneity and competition among banks matter for the macroeconomy? To address this question, we develop a Heterogeneous Bank New Keynesian (HBANK) model that incorporates oligopolistic competition among banks in both loan and deposit markets into an otherwise canonical New Keynesian model. We calibrate model parameters for the cost structure and demand for loans and deposits using data of the 170 largest banks in the U.S. Differences in the parameter values reflect differences among banks in the size of duration risk they take, markups of loan rates, and markdowns of deposit rates. Based on simulation exercises, we show that aggregate lending becomes more responsive to monetary and productivity shocks in our HBANK model than in a Representative Bank New Keynesian model (RBANK), primarily because of heterogeneity in duration risk and the responsiveness of loan markups among banks.

Keywords: banking; business cycles (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 E52 G21 (search for similar items in EconPapers)
Date: 2025-09-29
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