Inferring market power from retail deposit interest rates in the euro area
AbstractThis paper tests for the existence of market power in banking, using data on demand deposit rates of households and corresponding market rates in five euro area countries. An implicit measure for market power is based on a partial adjustment model that also allows for an asymmetric response of deposit rates to changes in market rates. The period covers the ten years since introduction of the euro. The analysis indicates that banks are exercising major market power within the euro area. In addition to general sluggishness, bank deposit rates’ reactions are clearly asymmetric: flexible when market rates are decreasing and rigid when rates are increasing. The degree of asymmetric behaviour can be interpreted as a further indication of the market power banks exercise. Despite country differences, a general pattern of interest rate adjustment in demand deposit pricing is observable.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 27/2009.
Length: 31 pages
Date of creation: 02 Nov 2009
Date of revision:
competition; banking industry; retail interest rates;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-11 (All new papers)
- NEP-BAN-2009-12-11 (Banking)
- NEP-COM-2009-12-11 (Industrial Competition)
- NEP-EEC-2009-12-11 (European Economics)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman).
If references are entirely missing, you can add them using this form.