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Bank deposit rate clustering: theory and empirical evidence

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Author Info

  • Charles Kahn
  • George Pennacchi
  • Ben Sopranzetti

Abstract

An examination of banks' optimal deposit-rate-setting behavior when some customers have limited recall, showing that when banks exploit this phenomenon, deposit rates will tend to be set at round fractions and will be relatively "sticky" at these levels.

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File URL: http://www.clevelandfed.org/research/workpaper/1996/wp9604.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9604.

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Date of creation: 1996
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Handle: RePEc:fip:fedcwp:9604

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Keywords: Bank deposits ; Interest ; Prices;

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References

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  1. Richard Rosen, 2002. "What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates," Journal of Financial Services Research, Springer, vol. 21(3), pages 173-193, June.
  2. Neumark, David & Sharpe, Steven A, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 657-80, May.
  3. Kashyap, Anil K, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 245-74, February.
  4. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
  5. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-99, May.
  6. Hutchison, David E. & Pennacchi, George G., 1996. "Measuring Rents and Interest Rate Risk in Imperfect Financial Markets: The Case of Retail Bank Deposits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 399-417, September.
  7. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
  8. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September.
  9. Brenner, Gabrielle A & Brenner, Reuven, 1982. "Memory and Markets, or Why Are You Paying $2.99 for a Widget?," The Journal of Business, University of Chicago Press, vol. 55(1), pages 147-58, January.
  10. Diebold, Francis X & Sharpe, Steven A, 1990. "Post-deregulation Bank-Deposit-Rate Pricing: The Multivariate Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 281-91, July.
  11. Harris, Lawrence, 1991. "Stock Price Clustering and Discreteness," Review of Financial Studies, Society for Financial Studies, vol. 4(3), pages 389-415.
  12. Schindler, Robert M. & Wiman, Alan R., 1989. "Effects of odd pricing on price recall," Journal of Business Research, Elsevier, vol. 19(3), pages 165-177, November.
  13. Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-60, December.
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