Monetary Policy Transmission, Central Bank Digital Currency, and Bank Market Power

Chen Hanfeng (), Hänsel Matthias and Nguyen Hiep
Additional contact information
Chen Hanfeng: 8097 Uppsala University , Uppsala, Sweden
Hänsel Matthias: Stockholm School of Economics, Stockholm, Sweden
Nguyen Hiep: 8097 Uppsala University , Uppsala, Sweden

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2025, vol. 245, issue 4-5, 527-576

Abstract: Interest rates on new central bank digital currencies (CBDCs) can be expected to enter the monetary policy toolkit soon. Using an extended Sidrauski (1967) model featuring an oligopsonistic banking sector, we study the complex transmission of interest rates on CBDC, which generally involve both direct and indirect effects. This is because a CBDC rate cut does not only affect the rate on the CBDC itself, but also induces the non-competitive deposit providers to adjust their spreads, as the new substitute for their products becomes relatively less attractive. A calibration exercise suggests that the indirect effects depend strongly on the sources of deposit market power: If driven by high concentration, they substantially amplify the aggregate effects of the CBDC policy rate, both in response to transitory shocks as well as regarding its long-run welfare effects. This contrasts them with policies directed at the banking sector which are weakened by a less competitive deposit market.

Keywords: CBDC; digital currency; bank market power; monetary transmission (search for similar items in EconPapers)
JEL-codes: E42 E43 E52 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1515/jbnst-2024-0008 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:245:y:2025:i:4-5:p:527-576:n:1004

DOI: 10.1515/jbnst-2024-0008

Access Statistics for this article

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) is currently edited by Peter Winker

More articles in Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) from De Gruyter
Bibliographic data for series maintained by Peter Golla ().