Amplifying Transmission of Monetary Policy Through Deposit Competition

Bono Beriša (), Ivan Mužić () and Jurica Zrnc ()
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Bono Beriša: University of St Andrews Business School, UK
Ivan Mužić: Faculty of Economics and Business, University of Rijeka
Jurica Zrnc: Croatian National Bank

No 75, Working Papers from The Croatian National Bank, Croatia

Abstract: We study the effects of a government initiative aimed at increasing the passthrough of monetary tightening to deposit rates. A large state-owned bank responded first to the initiative with a sharp and unexpected deposit rate increase. Competing banks quickly followed, albeit with substantial heterogeneity. The resulting deposit-rate shock led to a sizable increase in term deposits, driven primarily by ex-ante liquidity-rich individuals. Using matched deposit and residential real-estate purchase data at the individual level, we document a strong portfolio-rebalancing effect away from real estate. At the same time, consumption remains unchanged. Despite the sizable deposit reallocation, the shock does not affect the supply of loans to firms or households, consistent with high pre-existing bank liquidity. This setting provides a unique opportunity to uncover the effects of increased deposit competition and the ensuing deposit-rate shock on household portfolios, consumption, and bank lending.

Pages: 70
Date: 2026-06-17
New Economics Papers: this item is included in nep-mon
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