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Testing the law of one price in retail banking: An analysis for Colombia using a pair-wise approach

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  • Ana María Iregui

    ()

  • Jesús Otero

    ()

Abstract

We apply a pair-wise approach to test the law of one price for deposit (lending) rates in Colombia. We find that when banks are of different size deposit rates adjust quickly, suggesting a competitive environment. By contrast, lending rates adjust rapidly when banks are of similar size, supporting market segmentation.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 733.

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Length: 11
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:bdr:borrec:733

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Keywords: Law of one price; retail interest rates; Colombia. Classification JEL: G21.;

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  1. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "A test of the law of one price in retail banking," Banco de Espa�a Working Papers 0530, Banco de Espa�a.
  2. M. Hashem Pesaran, 2004. "A Pair-Wise Approach to Testing for Output and Growth Convergence," CESifo Working Paper Series 1308, CESifo Group Munich.
  3. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  4. Massimiliano Affinito & Fabio Farabullini, 2009. "Does the Law of One Price Hold in Euro-Area Retail Banking? An Empirical Analysis of Interest Rate Differentials across the Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 5-37, March.
  5. Pinelopi K. Goldberg & Frank Verboven, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," NBER Working Papers 8402, National Bureau of Economic Research, Inc.
  6. Akram, Q. Farooq & Rime, Dagfinn & Sarno, Lucio, 2009. "Does the law of one price hold in international financial markets? Evidence from tick data," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1741-1754, October.
  7. Lieven Baele, 2004. "Measuring European Financial Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 509-530, Winter.
  8. Leybourne, S J, 1995. "Testing for Unit Roots Using Forward and Reverse Dickey-Fuller Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(4), pages 559-71, November.
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