Interpolation

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  Figure 3 - South-North cross section showing the TREO grade block model.
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  Some exploration Auger data is also available but have no impact on the MRE.
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• Abstract
  I study the transmission of monetary policy to deposit rates in the euro area with a
  focus on asymmetries and the role of banking sector concentration.
• Moreover, the
  gap between deposit rates across euro area member states - despite being exposed to the same
  key ECB interest rates - has widened.
• This begs the question whether deposit rates are more
  sluggish in response to both policy rate increases and cuts, and what factors might influence the
  transmission of monetary policy to deposit rates.
• Whether banks are indeed able to adjust deposit rates asymmetrically to positive and
  negative changes in policy rates could thus well depend on how much market power they hold
  in the deposit market.
• Arguing that market power increases in the degree of market concentration,
  I further consider whether more concentrated banking sectors set rates (more) asymmetrically.
• The response of deposit rates in banking sectors with an average degree of concentration does
  not appear asymmetric.
• The degree of market concentration is often pointed at, but recent evidence
  for the euro area is scarce.
• In this paper, I provide empirical evidence on the asymmetric response of deposit rates to
  monetary policy, and relate this to the degree of concentration within a country?s banking sector.
• Both papers
  provide empirical evidence based on US deposit markets showing that deposit rates respond
  more rigidly to upward changes in market rates than downward changes, especially so in more
  concentrated markets.
• Recent research on euro area deposit markets,
  instead, has focused more on the transmission of negative policy rates (see e.g.
• Whether banks are able to set deposit rates that materially differ from policy rates is affected

  ECB Working Paper Series No 2896

  4

  by market concentration: market power is assumed to increase in the degree of concentration in
  the banking sector.

• Concentration thus appears to matter for how quickly ECB monetary policy has
  been transmitted to deposit rates across the euro area.
• Banks thus have a motive to be
  rigid in adjusting deposit rates to a ?positive? monetary policy shock.
• While customers are generally (and potentially rationally) inattentive, swift and substantial
  nominal deposit rate declines may trigger deposit outflows.
• relative deposit rate = deposit rate - short term rate
  The inverse of the wedge, the relative deposit rate will allow us to see more clearly how
  the deposit rate evolves in comparison to the short-term rate.
• This then translates to (more
  pronounced) effects on the transmission of policy to the deposit wedge, reinforcing the asymmetry discussed before.
• More concentration would mean more rigid deposit rates (and thus an
  increase in the deposit wedge) in case of positive surprises, and more flexible deposit rates (and
  thus a decrease in the deposit wedge) in case of negative surprises (see also e.g.
• I add an identical
  altered-linex adjustment cost for deposit rates, to capture the upward rigidity and downward
  flexibility of deposit rates as well.
• As discussed
  previously, the deposit rate is particularly rigid in case of a positive shock, illustrating the dividend smoothing motive and bank market power.
• Without the asymmetric adjustment cost,
  the response of the deposit rates to positive and negative changes in policy would have been
  symmetric.
• This appears a reasonable assumption
  in general, as market concentration or market shares are slow-moving concepts.
• 3

  Methods and data

  I study the dynamic response to an unexpected change in monetary policy on deposit rates
  in different countries in the euro area.

• deposit rate - short-term rate), which for the sake of
  brevity I will refer to as the ?relative deposit rate?.
• Positive IRFs for the relative deposit rate imply that
  the deposit rate has increased by more than the short-term rate, narrowing the wedge between
  the short-term rate and the deposit rate.
• 0
  ?2

  ?2
  ?4
  ?6

  ?4
  4

  8

  12

  4

  Months

  8

  12

  Months

  Figure 9: NFC rate response - linear combination of ?0 and ?1

  Relative deposit rate at 1 month

  Relative deposit rate at 4 months

  0.0

  0
  ?1

  p.p.

• 0
  0

  ?2
  ?1
  ?4
  4

  8

  12

  4

  8

  Months

  12

  Months

  Figure 12: NFC rate response - linear combination of ?0 and ?1

  Relative deposit rate at 1 month

  Relative deposit rate at 4 months
  2.0

  1.5

  p.p.

• And, (2) how quickly
  households and NFCs learn about changes in monetary policy, via the deposit rate, may vary
  across the monetary union.
• ?0 , ?1 )
  Figure A16: NFC overnight deposits, small member states

  Relative deposit rate (average)

  Relative deposit rate (interaction)

  2

  10
  5

  p.p.

• ?0 , ?1 )
  Figure A19: NFC overnight deposits, four lags

  Relative deposit rate (average)

  Relative deposit rate (interaction)
  5

  0

  p.p.

• ?0 , ?1 )
  Figure A28: NFC overnight deposits, small member states

  Relative deposit rate (average)

  Relative deposit rate (interaction)

  3

  5.0

  2

  2.5

  p.p.

• ?0 , ?1 )
  Figure A31: NFC overnight deposits, four lags

  Relative deposit rate (average)

  Relative deposit rate (interaction)

  3
  2

  p.p.

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• Ultimately, AI systems should help humans make better, more accurate decisions.
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Cause, effect and confidence

• Consequently, they are great at interpolating – that is, predicting or filling in the gaps between known values.
• It does not generate knowledge, nor the insights necessary for decision-makers operating in complex environments.
• As a result, they encourage organisations to assemble enormous repositories of data – or trawl through existing datasets collected for other purposes.

From big data to useful information

• Instead, they need useful information.
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A robot on the Moon

• The degree of confidence is as important as the belief, because it is a measure of what the robot doesn’t know.
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Mapping unknown landscapes

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Learning as we go

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