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

  • Iregui, Ana María
  • Otero, Jesús

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 sizes, deposit rates adjust quickly, suggesting a competitive environment. By contrast, lending rates adjust rapidly when banks are of similar sizes, supporting market segmentation.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176512005204
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 118 (2013)
Issue (Month): 1 ()
Pages: 29-32

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Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:29-32
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  2. Goldberg, Pinelopi & Verboven, Frank, 2001. "Market Integration and Convergence to the Law of One Price: Evidence from the European Car Market," CEPR Discussion Papers 2926, C.E.P.R. Discussion Papers.
  3. 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.
  4. Pesaran, M.H., 2004. "A Pair-wise Approach to Testing for Output and Growth Convergence," Cambridge Working Papers in Economics 0453, Faculty of Economics, University of Cambridge.
  5. Lieven Baele, 2004. "Measuring European Financial Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 509-530, Winter.
  6. 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.
  7. 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.
  8. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesus Saurina, 2007. "A Test of the Law of One Price in Retail Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2021-2040, December.
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