Does the deposit channel of monetary policy work in a high-interest rate environment?

This paper aims to test the hypothesis that monetary policy changes affect bank deposits in an environ-ment with high-interest rates. We perform a comprehensive analysis of bank statistics on deposits, credit operations, and bank accounting data between September 1999 and June 2018. We use Brazilian Central Bank statistics to run our tests. Our results show that Brazilian banks increase their spread on deposits in response to monetary policy actions, which reduces their funding due to an outflow of deposits. As a consequence, they grant fewer loans and increase credit restrictions. We also observe evidence that these effects vary with the degree of concentration on deposits observed locally and specifically in banks, and this phenomenon is more intense in regions with high concentration levels. Therefore, our results suggest a positive answer to the question posed in the title, that is, the deposit channel of monetary policy works in a high-interest rate environment, such as Brazil.(c) 2022 Published by Elsevier B.V.