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Sticky deposit rates

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  • John C. Driscoll
  • Ruth A. Judson

Abstract

We examine the dynamics of eleven different deposit rates for a panel of over 2,500 branches of about 900 depository institutions observed weekly over ten years. We replicate previous work showing that rates are downwards-flexible and upwards-sticky, and show that a simple menu cost model can generate this behavior. The degree of asymmetric rigidity varies substantially by deposit type, bank size, and across branches of the same bank. In the absence of such stickiness, depositors would have received as much as $100 billion more in interest per year during periods when market rates were rising. These results also suggest that deposit rates are likely to lag increases in policy and market rates in future tightening cycles.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-80.

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Date of creation: 2013
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Handle: RePEc:fip:fedgfe:2013-80

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Cited by:
  1. William F. Bassett & Mary Beth Chosak & John C. Driscoll & Egon Zakrajsek, 2012. "Changes in bank lending standards and the macroeconomy," Finance and Economics Discussion Series 2012-24, Board of Governors of the Federal Reserve System (U.S.).

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