The term structure of CD rates and monetary policy transmission
The paper investigates the term structure of CD rates and its relationship with the federal funds rate or monetary policy. The term structure derived in this paper is governed primarily by the federal funds rate and secondarily by banks' income smoothing behavior. It is consistent with the estimation results and differs significantly from the standard term structure of interest rates. The downturn phase of business cycles appears to be accompanied by more aggressive income smoothing by banks (compared with the upturn phase) due to their pessimistic expectations of future profits. The compositional shift in banks' liabilities during the downturn phase away from CDs toward transaction deposits may pose a greater withdrawal risk for banks.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edwards, Franklin R, 1977. "Managerial Objectives in Regulated Industries: Expense-Preference Behavior in Banking," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 147-62, February.
- Slovin, Myron B. & Sushka, Marie Elizabeth, 1979. "An economic model of the market for negotiable certificates of deposit," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 551-568, October.
- Boris Hofmann & Paul Mizen, 2004. "Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates," Economica, London School of Economics and Political Science, vol. 71, pages 99-123, 02.
- R. Mehra & E. Prescott, 2010.
"The equity premium: a puzzle,"
Levine's Working Paper Archive
1401, David K. Levine.
- Nautz, Dieter & Schmidt, Sandra, 2008.
"Monetary Policy Implementation and the Federal Funds Rate,"
ZEW Discussion Papers
08-025, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Nautz, Dieter & Schmidt, Sandra, 2009. "Monetary policy implementation and the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1274-1284, July.
- Hall, Anthony D & Anderson, Heather M & Granger, Clive W J, 1992. "A Cointegration Analysis of Treasury Bill Yields," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 116-26, February.
- 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.
- Whitney K. Newey & Kenneth D. West, 1986.
"A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix,"
NBER Technical Working Papers
0055, National Bureau of Economic Research, Inc.
- Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
- Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
- Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-31, February.
- Martin Feldstein & Elena Ranguelova, 2001.
"Individual Risk in an Investment-Based Social Security System,"
NBER Working Papers
8074, National Bureau of Economic Research, Inc.
- Martin Feldstein & Elena Ranguelova, 2001. "Individual Risk in an Investment-Based Social Security System," American Economic Review, American Economic Association, vol. 91(4), pages 1116-1125, September.
- James H. Stock & Mark W. Watson, 1998.
"Business Cycle Fluctuations in U.S. Macroeconomic Time Series,"
NBER Working Papers
6528, National Bureau of Economic Research, Inc.
- Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
- Robert J. Shiller & J. Huston McCulloch, 1987.
"The Term Structure of Interest Rates,"
NBER Working Papers
2341, National Bureau of Economic Research, Inc.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- 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.
- Orazio P. Attanasio & Hamish Low, 2004.
"Estimating Euler Equations,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 7(2), pages 405-435, April.
- Angelini, Paolo, 2000. "Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 54-73, February.
- Hiro Y. Toda & Peter C.B. Phillips, 1991.
"Vector Autoregression and Causality,"
Cowles Foundation Discussion Papers
977, Cowles Foundation for Research in Economics, Yale University.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Liu, Ming-Hua & Margaritis, Dimitri & Tourani-Rad, Alireza, 2008. "Monetary policy transparency and pass-through of retail interest rates," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 501-511, April.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
- Jeremy C. Stein & Anil K. Kashyap, 2000. "What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?," American Economic Review, American Economic Association, vol. 90(3), pages 407-428, June.
- Ronald A. Ratti, 1980. "Bank Attitude Toward Risk, Implicit Rates of Interest, and the Behavior of an Index of Risk Aversion for Commercial Banks," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 309-331.
- Gómez-Valle, Lourdes & Martinez-Rodriguez, Julia, 2008. "Modelling the term structure of interest rates: An efficient nonparametric approach," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 614-623, April.
- Ranguelova, Elena & Feldstein, Martin, 2001. "Individual Risk in an Investment-Based Social Security System," Scholarly Articles 2797440, Harvard University Department of Economics.
- Prisman, Eliezer Z. & Slovin, Myron B. & Sushka, Marie E., 1986. "A general model of the banking firm under conditions of monopoly, uncertainty, and recourse," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 293-304, March.
- Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
- Angelini, Paolo, 2000. "Erratum [Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market]," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 442, August.
- Kok, Christoffer & Werner, Thomas, 2006. "Bank interest rate pass-through in the euro area: a cross country comparison," Working Paper Series 0580, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:1:p:82-94. See general 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: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.