IDEAS home Printed from https://ideas.repec.org/p/hnb/wpaper/75.html

Amplifying Transmission of Monetary Policy Through Deposit Competition

Author

Listed:
  • Bono Beriša

    (University of St Andrews Business School, UK)

  • Ivan Mužić

    (Faculty of Economics and Business, University of Rijeka)

  • Jurica Zrnc

    (Croatian National Bank)

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.

Suggested Citation

  • Bono Beriša & Ivan Mužić & Jurica Zrnc, 2026. "Amplifying Transmission of Monetary Policy Through Deposit Competition," Working Papers 75, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:75
    as

    Download full text from publisher

    File URL: https://www.hnb.hr/documents/20182/5827346/w-075.pdf/1ba890f6-bc16-91b2-df72-0eb37c651ba3?version=1.0&t=1781780409073
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Guido W. Imbens & Michal Kolesár, 2016. "Robust Standard Errors in Small Samples: Some Practical Advice," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 701-712, October.
    2. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2021. "Banking on Deposits: Maturity Transformation without Interest Rate Risk," Journal of Finance, American Finance Association, vol. 76(3), pages 1091-1143, June.
    3. James M. Poterba & Steven F. Venti & David A. Wise, 2011. "The Drawdown of Personal Retirement Assets," NBER Working Papers 16675, National Bureau of Economic Research, Inc.
    4. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 77-153.
    5. Giovanni L. Violante & Greg Kaplan, 2022. "The Marginal Propensity to Consume in Heterogeneous Agent Models," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 747-775, August.
    6. Altavilla, Carlo & Boucinha, Miguel & Burlon, Lorenzo & Giannetti, Mariassunta & Schumacher, Julian, 2025. "Central bank liquidity reallocation and bank lending: Evidence from the tiering system," Journal of Financial Economics, Elsevier, vol. 168(C).
    7. Cappelletti, Giuseppe & Marqués-Ibáñez, David & Reghezza, Alessio & Salleo, Carmelo, 2024. "As interest rates surge: flighty deposits and lending," Working Paper Series 2923, European Central Bank.
    8. Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2020. "Household balance sheet channels of monetary policy: A back of the envelope calculation for the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    9. Alberto Polo, 2021. "Imperfect pass-through to deposit rates and monetary policy transmission," Bank of England Staff Working Paper series 933, Bank of England.
    10. Kho, Stephen, 2025. "Deposit market concentration and monetary transmission: Evidence from the euro area," European Economic Review, Elsevier, vol. 173(C).
    11. Victor Chernozhukov & Kaspar Wüthrich & Yinchu Zhu, 2021. "An Exact and Robust Conformal Inference Method for Counterfactual and Synthetic Controls," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 116(536), pages 1849-1864, October.
    12. Matias D. Cattaneo & Yingjie Feng & Rocio Titiunik, 2021. "Prediction Intervals for Synthetic Control Methods," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 116(536), pages 1865-1880, October.
    13. Alberto Abadie & Alexis Diamond & Jens Hainmueller, 2015. "Comparative Politics and the Synthetic Control Method," American Journal of Political Science, John Wiley & Sons, vol. 59(2), pages 495-510, February.
    14. Bruno Ferman & Cristine Pinto, 2021. "Synthetic controls with imperfect pretreatment fit," Quantitative Economics, Econometric Society, vol. 12(4), pages 1197-1221, November.
    15. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 77-153.
    16. Joseph G. Altonji & Todd E. Elder & Christopher R. Taber, 2008. "Using Selection on Observed Variables to Assess Bias from Unobservables When Evaluating Swan-Ganz Catheterization," American Economic Review, American Economic Association, vol. 98(2), pages 345-350, May.
    17. Eduardo Cavallo & Sebastian Galiani & Ilan Noy & Juan Pantano, 2013. "Catastrophic Natural Disasters and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1549-1561, December.
    18. Jeremy C. Stein, 1998. "An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 466-486, Autumn.
    19. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    20. Daniel Carvalho, 2014. "The Real Effects of Government-Owned Banks: Evidence from an Emerging Market," Journal of Finance, American Finance Association, vol. 69(2), pages 577-609, April.
    21. Sumit Agarwal & Souphala Chomsisengphet & Yildiray Yildirim & Jian Zhang, 2021. "Interest Rate Pass-Through and Consumption Response: The Deposit Channel," The Review of Economics and Statistics, MIT Press, vol. 103(5), pages 922-938, December.
    22. Asim Ijaz Khwaja & Atif Mian, 2008. "Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market," American Economic Review, American Economic Association, vol. 98(4), pages 1413-1442, September.
    23. Alisdair McKay, 2013. "Search for Financial Returns and Social Security Privatization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 253-270, April.
    24. Mark L. Egan & Ali Hortaçsu & Nathan A. Kaplan & Adi Sunderam & Vincent Yao, 2025. "Dynamic Competition for Sleepy Deposits," NBER Working Papers 34267, National Bureau of Economic Research, Inc.
    25. Marek Jarociński & Peter Karadi, 2020. "Deconstructing Monetary Policy Surprises—The Role of Information Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 1-43, April.
    26. Abadie, Alberto & Diamond, Alexis & Hainmueller, Jens, 2010. "Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program," Journal of the American Statistical Association, American Statistical Association, vol. 105(490), pages 493-505.
    27. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2018. "Monetary Policy According to HANK," American Economic Review, American Economic Association, vol. 108(3), pages 697-743, March.
    28. Illes, Anamaria & Lombardi, Marco J. & Mizen, Paul, 2019. "The divergence of bank lending rates from policy rates after the financial crisis: The role of bank funding costs," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 117-141.
    29. Bruno Ferman & Cristine Pinto & Vitor Possebom, 2020. "Cherry Picking with Synthetic Controls," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 39(2), pages 510-532, March.
    30. Adrien Auclert & Matthew Rognlie & Ludwig Straub, 2025. "Fiscal and Monetary Policy with Heterogeneous Agents," Annual Review of Economics, Annual Reviews, vol. 17(1), pages 539-562, August.
    31. Morgan Maneely & Mr. Lev Ratnovski, 2024. "Bank Profits and Bank Taxes in the EU," IMF Working Papers 2024/143, International Monetary Fund.
    32. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
    33. John Coglianese & Maria Olsson & Christina Patterson, 2025. "Monetary Policy and the Labor Market: A Quasi-experiment in Sweden," American Economic Review, American Economic Association, vol. 115(10), pages 3451-3486, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Garoupa, Nuno & Spruk, Rok, 2025. "Populist constitutional backsliding and judicial independence: Evidence from Türkiye," International Review of Law and Economics, Elsevier, vol. 84(C).
    2. McCloud, Nadine, 2024. "What has inflation targeting done for household consumption?," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    3. David Gilchrist & Thomas Emery & Nuno Garoupa & Rok Spruk, 2023. "Synthetic Control Method: A tool for comparative case studies in economic history," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 409-445, April.
    4. Bardóczy, Bence & Savoia, Ettore & Vel´asquez-Giraldo, Mateo, 2026. "HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations," Working Paper Series 461, Sveriges Riksbank (Central Bank of Sweden).
    5. Dennis Shen & Peng Ding & Jasjeet Sekhon & Bin Yu, 2022. "Same Root Different Leaves: Time Series and Cross-Sectional Methods in Panel Data," Papers 2207.14481, arXiv.org, revised Oct 2022.
    6. Kuosmanen, Timo & Zhou, Xun & Eskelinen, Juha & Malo, Pekka, 2021. "Design Flaw of the Synthetic Control Method," MPRA Paper 106328, University Library of Munich, Germany.
    7. Roy Cerqueti & Raffaella Coppier & Alessandro Girardi & Marco Ventura, 2022. "The sooner the better: lives saved by the lockdown during the COVID-19 outbreak. The case of Italy," The Econometrics Journal, Royal Economic Society, vol. 25(1), pages 46-70.
    8. Pier Basaglia & Sophie M. Behr & Moritz A. Drupp, 2023. "De-Fueling Externalities: How Tax Salience and Fuel Substitution Mediate Climate and Health Benefits," Discussion Papers of DIW Berlin 2041, DIW Berlin, German Institute for Economic Research.
    9. Nuno Garoupa & Virginia Rosales & Rok Spruk, 2025. "Assaults on Judicial Independence under the Pretense of Modernization: Evidence from Venezuela," Papers 2511.10681, arXiv.org.
    10. Klößner, Stefan & Pfeifer, Gregor, 2015. "Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113207, Verein für Socialpolitik / German Economic Association.
    11. Justin C. Wiltshire, 2023. "Walmart Supercenters and Monopsony Power: How A Large, Low-Wage Employer Impacts Local Labor Markets," Department Discussion Papers 2304, Department of Economics, University of Victoria.
    12. Fry, Joseph, 2024. "A method of moments approach to asymptotically unbiased Synthetic Controls," Journal of Econometrics, Elsevier, vol. 244(1).
    13. Guillaume Allaire Pouliot & Zhen Xie & Ziyi Liu, 2022. "Degrees of Freedom and Information Criteria for the Synthetic Control Method," Papers 2207.02943, arXiv.org, revised Mar 2026.
    14. Wei Tian & Seojeong Lee & Valentyn Panchenko, 2023. "Synthetic Controls with Multiple Outcomes," Papers 2304.02272, arXiv.org, revised Jul 2024.
    15. Masahiro Kato & Akari Ohda, 2023. "Asymptotically Unbiased Synthetic Control Methods by Moment Matching," Papers 2307.11127, arXiv.org, revised Nov 2025.
    16. Pier Basaglia & Sophie M. Behr & Moritz A. Drupp & Piero Basaglia, 2023. "De-Fueling Externalities: Causal Effects of Fuel Taxation and Mediating Mechanisms for Reducing Climate and Pollution Costs," CESifo Working Paper Series 10508, CESifo.
    17. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    18. Grier, Kevin & Mahmood, Towhid & Powell, Benjamin, 2023. "Anti-sweatshop activism and the safety-employment tradeoff: Evidence from Bangladesh's Rana Plaza disaster," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 174-190.
    19. McCloud, Nadine & Ivey, Wendel & Taylor, Ajornie, 2026. "The workforce paradox: Do extreme natural disasters accelerate or undermine labour productivity?," Economic Modelling, Elsevier, vol. 154(C).
    20. Joseph Fry, 2023. "A Method of Moments Approach to Asymptotically Unbiased Synthetic Controls," Papers 2312.01209, arXiv.org, revised Mar 2024.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hnb:wpaper:75. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Romana Sinković (email available below). General contact details of provider: https://www.hnb.hr .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.