How does bank cost-efficiency affect the interest rate pass-through?

Natalia Andries and Steve Billon

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: This paper theoretically investigates the effect of bank cost-efficiency on the transmission of monetary policy impulses to bank lending rates. In a monopolistic competition setting that displays increasing marginal costs, we show that the distortion of the interest rate pass-through depends on the nature of the bank cost-efficiency shock. If banks increase their cost-efficiency on loan activities, the monetary policy transmission is strengthened. Instead, if banks experience an improvement in their cost-efficiency on deposit activities, the interest rate pass-through is weakened.

Keywords: Bank cost-efficiency; Bank interest rates; Monetary policy transmission; Interest rate pass-through; Bank imperfect competition (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2024-04

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