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Market power and bank interest rate adjustments

  • Raquel Lago-González


    (Banco de España)

  • Vicente Salas-Fumás


    (Banco de España
    Universidad de Zaragoza)

Registered author(s):

    Evidence is presented on the long and short run relationship between the money market interest rate and loan and deposit interest rates charged by individual Spanish banks between 1988 and 2003. The results indicate that such relationships have been determined by a mixture of adjustment costs and market power of banks, which creates interest rate rigidity and asymmetries in the speed at which increases and decreases in the money market interest rate are translated into banking interest rates. We also find that the price adjustment speed first decreases and later increases with market concentration, which is consistent with predictions from models that assume quantity adjustment costs.

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    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0539.

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    Length: 40 pages
    Date of creation: Nov 2005
    Date of revision:
    Handle: RePEc:bde:wpaper:0539
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