Market-Priced Savings and Monetary Policy Transmission

This technical report examines the implications of market-priced savings (MPS) for households, banks, and monetary policy transmission. It outlines the motivation behind the study, which focuses on how changes in policy rates are passed through to deposit rates in the euro area and Denmark. The report presents a conceptual framework where banks operate under monopolistic competition, and depositors have multiple options, including cash, deposits, and MPS. Key findings indicate that higher MPS use strengthens monetary policy transmission, leading to increased responsiveness of deposit and loan volumes to policy changes. The report also discusses empirical strategies employed to analyze data from Denmark and the euro area, highlighting the heterogeneity in MPS use across different segments. Conclusions drawn emphasize the importance of MPS in enhancing deposit returns for households and the potential challenges it poses for banks regarding market power and monetary policy effectiveness.