A model of retail banking and the deposits channel of monetary policy

Michael Choi and Guillaume Rocheteau

Journal of Monetary Economics, 2023, vol. 139, issue C, 127-147

Abstract: We develop a dynamic, search-theoretic model of bank deposits markets where relationships are bilateral, the demand for liquid assets is microfounded, and consumers are privately informed about their liquidity needs. As the policy rate rises, the deposit spread widens, and aggregate deposits shrink, in accordance with the deposits channel documented in Drechsler et al. (2017). The deposit outflow originates from consumers in the lower percentiles of the distribution of deposits. As banks become more informed about consumers’ types (e.g., through big data), their market power increases but transmission weakens. As entry costs are reduced (e.g., through online banking), market power shrinks and transmission weakens.

Keywords: Banking; Money; Search; Market power; Deposits channel (search for similar items in EconPapers)
JEL-codes: D82 D83 E40 E50 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:139:y:2023:i:c:p:127-147

DOI: 10.1016/j.jmoneco.2023.06.010

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