What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates
Tóm tắt
This paper contains a model of price setting in the presence of heterogeneous customers, explaining why bank interest rates respond sluggishly to some extended movements in market interest rates but not to others. Price (the bank interest rate) is likely to change only slightly with cost (the market interest rate) when the price-cost margin is already large and to be responsive when the price-cost margin is relatively small. The model is tested using data on interest rates offered for bank deposit instruments during 1987–2001. The results support the theoretical model, indicating that customer behavior plays a role in bank interest rate decisions.
Tài liệu tham khảo
Ausubel, Lawrence M. “The Failure of Competition in the Credit Card Market.” American Economic Review 81 (March 1991), 50–81.
Ausubel, Lawrence M. “Rigidity and Asymmetric Adjustment of Bank Interest Rates.” Mimeo, March 1992.
Calem, Paul S., and Loretta J. Mester. “Search, Switching Costs, and the Stickiness of Credit Card Interest Rates.” American Economic Review 85 (December 1995), 1327–1336.
Diebold, Francis X., and Steven A. Sharpe. “Post-Deregulation Deposit Rate Pricing: The Multivariate Dynamics.” Journal of Business and Economic Statistics 51 (July 1984), 393–414.
Green, Christopher J. “Banks as Interest Rate Managers.” Journal of Financial Services Research 14 (December 1998), 189–208.
Hannan, Timothy H., and Allen N. Berger. “The Rigidity of Prices: Evidence From the Banking Industry.” American Economic Review 81 (September 1991), 938–945.
Hutchison, David E. “Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach.” Journal of Money, Credit, and Banking 27 (February 1995), 217–231.
Mester, Loretta J., and Anthony Saunders. “Why Does the Prime Rate Change?” Journal of Banking and Finance 19 (July 1995), 743–764.
Moore, George R., Richard D. Porter, and David H. Small. “Modelling the Disaggregated Demands for M2 and M1: The U.S. Experience in the 1980s.” Proceedings of a Federal Reserve Board Conference on Monetary Aggregates and Financial System Behavior, 1990.
Neumark, David, and Steven A. Sharpe. “Market Structure and the Nature of Price Rigidity: Evidence From the Market for Consumer Deposits.” Quarterly Journal of Economics 107 (May 1992), 657–680.
Newey, Whitney K., and Kenneth D. West. “A Simple Positive Definite Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica 55 (May 1987), 703–708.
O'Brien, James M. “Estimating the Value and Interest Rate Risk of Interest-Bearing Transactions Deposits,” working paper, November 2000.
Rotemberg, Julio J., and Garth Saloner. “A Supergame-Theoretic Model of Price Wars During Booms” American Economic Review 76 (June 1986), 390–407.
Rotemberg, Julio J., and Garth Saloner. “The Relative Rigidity of Monopoly Pricing.” American Economic Review 77 (December 1987), 917–926.
Sharpe, Steven A. “Consumer Switching Costs, Market Structure and Prices: The Theory and its Application to the Bank Deposit Market,” FEDS working paper #183, January 1992.