Other publications may include books, quarterly reviews, annual reports and economic bulletins from the ECB, PhD theses and Danmarks Nationalbank’s policies.

The Effects of Monetary Policy in Denmark - Part 1

Changes in monetary-policy interest rates have a potential impact on households and firms via two channels, i.e. the interest-rate channel and the credit channel. Part 2 of this Monetary Review analyses these channels. This article provides a non-technical summary of the most important findings of the analysis. We find that the pass-through from monetary-policy interest rates to bank retail rates is high, but there are indications that it has diminished in connection with the financial crisis. According to the credit channel, a change in monetary-policy interest rates may also influence the total supply of loans. The analysis does not demonstrate that this channel plays an important role in Denmark. The sensitivity of the Danish economy to fluctuations in interest rates has increased considerably since the mid-1990s. This can be attributed mainly to higher indebtedness and more widespread use of adjustable-rate loans for housing finance. If monetary policy is "appropriate" relative to the business cycle, high interest-rate sensitivity could be an advantage. But if changes in monetary-policy interest rates are independent of the business cycle and are prompted by e.g. the need to address speculative pressure on the krone, the effect may be procyclical.