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Interest rate dispersion in deposit and loan markets

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Author Info

  • Alfredo Martín-Oliver

    ()
    (Banco de España)

  • Vicente Salas-Fumás

    ()
    (Banco de España
    Universidad de Zaragoza)

  • Jesús Saurina

    ()
    (Banco de España)

Abstract

This paper investigates the existence and determinants of interest rates dispersion in loans and deposits of Spanish banks. A unique feature of the research is that it covers a whole industry (thirty products and two hundred banks) from 1989 to 2003. We find that: i) interest rates dispersion is a persistent phenomena in loans and deposits markets; ii) the differences across products in the observed dispersion can be explained as a function of variables that affect the private net benefits of consumers' investment in information including search costs (frequency and volume of transactions); iii) interest rate dispersion is more sensible to product specific inflation than to changes in the interest rate of the economy; iv) regulation of standards of transparency by the Spanish Central Bank has been effective in reducing interest rate dispersion.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0506e.pdf
File Function: First version, March 2005
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0506.

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Length: 36 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:bde:wpaper:0506

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Keywords: price dispersion; search costs; information differentiation; inflation; transparency regulation;

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References

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  4. Benabou, Roland & Gertner, Robert, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 69-94, January.
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  26. Márcio I. Nakane & Sérgio Mikio Koyama, 2003. "Search Costs and the Dispersion of Loan Interest Rates in Brazil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31th Brazilian Economics Meeting] d28, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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Citations

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Cited by:
  1. 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.
  2. Kok, Christoffer & Lichtenberger, Jung-Duk, 2007. "Mortgage interest rate dispersion in the euro area," Working Paper Series 0733, European Central Bank.
  3. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesus Saurina, 2007. "A Test of the Law of One Price in Retail Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2021-2040, December.

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