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Estimating Price Elasticities on the Hungarian Consumer Lending and Deposit Markets: Demand Effects and Their Possible Consequences


  • Dániel Holló

    () (Magyar Nemzeti Bank,)


In this paper, we use bank product and consumer level data and estimate a random coefficient logit model (RCL) to calculate price elasticities on the Hungarian consumer lending and retail deposit markets in line with the most recent developments in the literature on discrete choice demand estimation. The findings indicate that, on average, demand for domestic currency-denominated loans is more price sensitive than demand for foreign currency loans. The results also suggest that there is an asymmetric substitution effect toward foreign currency- denominated loans as a result of a price increase of domestic currency-denominated loans (i.e. a rise in interest rates on HUF-denominated loans increases the demand for foreign currency loans more than a rise in interest rates on foreign currency loans increases the demand for HUF-denominated loans). Finally, as the substitution effect toward foreign currency-denominated loans is stronger, it might weaken the effectiveness of the interest and exchange rate channels of monetary transmission.

Suggested Citation

  • Dániel Holló, 2010. "Estimating Price Elasticities on the Hungarian Consumer Lending and Deposit Markets: Demand Effects and Their Possible Consequences," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 73-89.
  • Handle: RePEc:onb:oenbfi:y:2010:i:1:b:5

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    References listed on IDEAS

    1. Michael Spence, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Oxford University Press, vol. 43(2), pages 217-235.
    2. Igal Hendel & Aviv Nevo, 2006. "Sales and consumer inventory," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 543-561, September.
    3. Nevo, Aviv, 2001. "Measuring Market Power in the Ready-to-Eat Cereal Industry," Econometrica, Econometric Society, vol. 69(2), pages 307-342, March.
    4. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    5. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
    6. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
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    Cited by:

    1. repec:eee:jbfina:v:87:y:2018:i:c:p:87-101 is not listed on IDEAS
    2. Glaser Darrell J. & Rahman Ahmed S. & Smith Katherine A. & Chan Daniel W., 2013. "Product Differentiation and Consumer Surplus in the Microfinance Industry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 991-1022, August.
    3. Schmaltz, Christian & Pokutta, Sebastian & Heidorn, Thomas & Andrae, Silvio, 2014. "How to make regulators and shareholders happy under Basel III," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 311-325.

    More about this item


    Price elasticity of demand; random coefficient logit model; monetary policy; financial stability;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General


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