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Money creation and banks’ interest rate setting

Author

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  • Alexey Ponomarenko

Abstract

Purpose - This study aims to examine a potential case of interdependence in loan and deposit interest rate setting. Design/methodology/approach - The authors set up a theoretical microsimulation model with endogenous loan interest rate determination via a learning algorithm. Findings - The authors show that in certain environments, it may be beneficial for large banks to incorporate information on retail funding costs into the lending rate setting decision. Originality/value - The author’s model is based on the realistic money creation mechanism.

Suggested Citation

  • Alexey Ponomarenko, 2021. "Money creation and banks’ interest rate setting," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 14(2), pages 141-151, July.
    • Handle: RePEc:eme:jfeppp:jfep-10-2020-0214
    DOI: 10.1108/JFEP-10-2020-0214
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    More about this item

    Keywords

    Banks; Money and interest rates; Simulation modeling; Money supply; Lending rates; Deposit rates; Agent-based model; E43; E51; G21; C63;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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