Concentration and Price Rigidity: Evidence for the Deposit Market in Chile
AbstractThe effects of monetary policy depend significantly on the capacity of the Central Bank to affect market interest rates by managing liquidity. Therefore, it comes out as an important issue to determine the degree of flexibility of lending and deposit rates to changes in policy rates. In this sense, there is a vast literature that explores sluggishness on bank interest rates. In terms of deposit interest rates a larger rigidity has been associated to higher levels of concentration on the banking industry. Besides, the market discipline hypothesis would imply differences on the response of banks’ deposit rates according to their characteristics. This paper analyzes deposit interest rate sluggishness for the Chilean banking industry and its relation with market concentration and bank characteristics. The results support the fact that higher concentration imply more rigidity and that bank characteristics such as solvency, size and loan risk would also make a difference in the speed of adjustment.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 311.
Date of creation: Mar 2005
Date of revision:
Other versions of this item:
- Rodrigo Fuentes & Solange Berstein, 2004. "Concentration and Price Rigidity: Evidence for the deposit Market in Chile," Econometric Society 2004 Latin American Meetings 67, Econometric Society.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-24 (All new papers)
- NEP-COM-2005-04-25 (Industrial Competition)
- NEP-LAM-2005-05-10 (Central & South America)
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