Deposit Market Concentration and Monetary Transmission: Evidence from the Euro Area

30 Pages Posted: 5 Sep 2023

Date Written: August 24, 2023

Abstract

I study the transmission of monetary policy to deposit rates in the euro area with a focus on the role of banking sector concentration. Using a local projections framework with 2003-2022 country-level and bank-level data for thirteen euro area member states, I find that deposit rates respond symmetrically to unexpected changes in monetary policy. However, more concentrated domestic banking sectors do pass on unexpected monetary tightening (easing) more slowly (quickly) than less concentrated banking sectors, which contributes to a temporary divergence of deposit rates across the euro area. These results suggest that heterogeneity in the degree of banking sector concentration matters for the transmission of monetary policy, which in turn may affect banking sector profitability as well as the macro-economic response to monetary policy.

Keywords: Monetary transmission, deposit rates, market concentration

JEL Classification: E43, E52, D40

Suggested Citation

Kho, Stephen, Deposit Market Concentration and Monetary Transmission: Evidence from the Euro Area (August 24, 2023). De Nederlandsche Bank Working Paper No. 790, Available at SSRN: https://ssrn.com/abstract=4562196 or http://dx.doi.org/10.2139/ssrn.4562196

Stephen Kho (Contact Author)

De Nederlandsche Bank

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
61
Abstract Views
247
Rank
757,521
PlumX Metrics