Modest pass-through of monetary policy to retail rates but no reversal

In this paper, we search for evidence of a reversal rate in monetary policy based on a sample of Danish banks. Our findings do not point towards a reversal in the pass-through of changes to the monetary policy rate. While the immediate passthrough to bank lending rates has been lower following the introduction of negative policy rates, the direction has not changed. Moreover, we do not find support for the hypothesis that in a negative rate environment banks with a higher deposit share respond less to cuts in the policy interest rate or experience lower lending growth than other banks. We find that the slowdown in pass-through around the introduction of negative policy rates follows an initial slowdown in the aftermath of the financial crisis. We argue that this may to some extent reflect that banks adjusted their required compensation for risk.