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Post-deregulation Bank-Deposit-Rate Pricing: The Multivariate Dynamics

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  • Diebold, Francis X
  • Sharpe, Steven A

Abstract

The relationship between wholesale and retail interest rates since deregulation is of substantial interest to economists and policymakers, because the predictability of the monetary aggregates and their relationship to bank reserves depend on adjustment patterns in the wholesale and retail monetary markets. We provide evidence on the nature of wholesale-retail interest rate relationships by examining the dynamic interactions among two wholesale interest rates (federal funds and six-month treasury bills) and three retail deposit rates (six-month consumer certificates of deposit, money market deposit accounts, and super NOW's). We perform a multivariate time series analysis, with particular attention paid to a causal patterns and the shapes of impulse response functions. A number of stylized facts, related to size of adjustment, speed of adjustment, and pattern of adjustment, are established for the response of retail rates to unanticipated shocks in wholsale rates.

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Bibliographic Info

Article provided by American Statistical Association in its journal Journal of Business and Economic Statistics.

Volume (Year): 8 (1990)
Issue (Month): 3 (July)
Pages: 281-91

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Handle: RePEc:bes:jnlbes:v:8:y:1990:i:3:p:281-91

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Cited by:
  1. Alfaro, Rodrigo & Becerra, Juan Sebastian & Sagner, Andres, 2010. "Estimación de la estructura de tasas utilizando el modelo Dinámico Nelson Siegel: resultados para Chile y EEUU
    [The Dynamic Nelson-Siegel model: empirical results for Chile and US]
    ," MPRA Paper 25912, University Library of Munich, Germany, revised 23 Jun 2010.
  2. Birge, John R. & Júdice, Pedro, 2013. "Long-term bank balance sheet management: Estimation and simulation of risk-factors," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4711-4720.
  3. Thompson, Mark A., 2006. "Asymmetric adjustment in the prime lending-deposit rate spread," Review of Financial Economics, Elsevier, vol. 15(4), pages 323-329.
  4. Charles Kahn & George Pennacchi & Ben Sopranzetti, 1996. "Bank deposit rate clustering: theory and empirical evidence," Working Paper 9604, Federal Reserve Bank of Cleveland.
  5. Solange Berstein & Rodrigo Fuentes, 2005. "Concentration and Price Rigidity: Evidence for the Deposit Market in Chile," Working Papers Central Bank of Chile 311, Central Bank of Chile.
  6. Francis X. Diebold & Canlin Li, 2003. "Forecasting the Term Structure of Government Bond Yields," NBER Working Papers 10048, National Bureau of Economic Research, Inc.
  7. Nishiyama, Yasuo, 2011. "The term structure of CD rates and monetary policy transmission," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 82-94, January.
  8. Su, Chi Wei & Chang, Hsu Ling, 2010. "Asymmetric Adjustment in the Lending-Deposit Rate Spread: Evidence from Eastern European Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 165-175, July.
  9. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Banco de Espa�a Working Papers 0539, Banco de Espa�a.
  10. Bredin, Don & Fitzpatrick, Trevor & O'Reilly, Gerard, 2001. "Retail Interest Rate Pass-Through: The Irish Experience," Research Technical Papers 6/RT/01, Central Bank of Ireland.
  11. Yasuo Nishiyama, 2007. "Are Banks Risk-Averse?," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 471-490, Fall.
  12. Michael J. Dueker, 2000. "Are prime rate changes asymmetric?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 33-40.
  13. Richard Sheehan, 2013. "Valuing Core Deposits," Journal of Financial Services Research, Springer, vol. 43(2), pages 197-220, April.
  14. Hsu-Ling Chang & Chi-Wei Su, 2010. "The Lending-Deposit Rate Relationship in Eastern European Countries: Evidence from the Rank Test for Non-linear Cointegration," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(6), pages 534-544, December.
  15. John C. Driscoll & Ruth A. Judson, 2013. "Sticky deposit rates," Finance and Economics Discussion Series 2013-80, Board of Governors of the Federal Reserve System (U.S.).
  16. James Gilkeson & John List & Craig Ruff, 1999. "Evidence of Early Withdrawal in Time Deposit Portfolios," Journal of Financial Services Research, Springer, vol. 15(2), pages 103-122, March.
  17. Roger Craine, 1996. "Fairly Priced Deposit Insurance and Bank Charter Policy," Finance 9605002, EconWPA.

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