IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2013-80.html
   My bibliography  Save this paper

Sticky deposit rates

Author

Listed:
  • John C. Driscoll
  • Ruth Judson

Abstract

We examine the dynamics of eleven different deposit rates for a panel of over 2,500 branches of about 900 depository institutions observed weekly over ten years. We replicate previous work showing that rates are downwards-flexible and upwards-sticky, and show that a simple menu cost model can generate this behavior. The degree of asymmetric rigidity varies substantially by deposit type, bank size, and across branches of the same bank. In the absence of such stickiness, depositors would have received as much as $100 billion more in interest per year during periods when market rates were rising. These results also suggest that deposit rates are likely to lag increases in policy and market rates in future tightening cycles.

Suggested Citation

  • John C. Driscoll & Ruth Judson, 2013. "Sticky deposit rates," Finance and Economics Discussion Series 2013-80, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-80
    as

    Download full text from publisher

    File URL: http://www.federalreserve.gov/pubs/feds/2013/201380/201380abs.html
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/feds/2013/201380/201380pap.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Michael Dotsey & Robert G. King & Alexander L. Wolman, 1999. "State-Dependent Pricing and the General Equilibrium Dynamics of Money and Output," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 655-690.
    2. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
    3. William A. Barnett & Douglas Fisher & Apostolos Serletis, 2006. "Consumer Theory and the Demand for Money," World Scientific Book Chapters,in: Money And The Economy, chapter 1, pages 3-43 World Scientific Publishing Co. Pte. Ltd..
    4. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    5. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    6. 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 281-291, July.
    7. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-389, April.
    8. Rotemberg, Julio J & Driscoll, John C & Poterba, James M, 1995. "Money, Output, and Prices: Evidence from a New Monetary Aggregate," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 67-83, January.
    9. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    10. Daniel Levy & Andrew T. Young, 2004. ""The Real Thing:" Nominal Price Rigidity of the Nickel Coke, 1886-1959," Working Papers 2004-2, Bar-Ilan University, Department of Economics.
    11. David Neumark & Steven A. Sharpe, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 657-680.
    12. Ben R. Craig & Valeriya Dinger, 2014. "The Duration of Bank Retail Interest Rates," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 21(2), pages 191-207, July.
    13. Kiley, Michael T, 2000. "Endogenous Price Stickiness and Business Cycle Persistence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 28-53, February.
    14. Robert J. Barro, 1972. "A Theory of Monopolistic Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 17-26.
    15. Anil K Kashyap, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 245-274.
    16. 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 938-945, September.
    17. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    18. Stephen G. Cecchetti, 1985. "Staggered Contracts and the Frequency of Price Adjustment," The Quarterly Journal of Economics, Oxford University Press, vol. 100(Supplemen), pages 935-959.
    19. Yankov, Vladimir, 2014. "In Search of a Risk-free Asset," Finance and Economics Discussion Series 2014-108, Board of Governors of the Federal Reserve System (U.S.).
    20. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2017. "The Deposits Channel of Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1819-1876.
    2. Morris, Charles S. & Regehr, Kristen, 2014. "What explains low net interest income at community banks?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 59-87.
    3. Bassett, William F. & Chosak, Mary Beth & Driscoll, John C. & Zakrajšek, Egon, 2014. "Changes in bank lending standards and the macroeconomy," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 23-40.
    4. Acharya, Viral V & Mora, Nada, 2011. "Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis," CEPR Discussion Papers 8706, C.E.P.R. Discussion Papers.
    5. Sebastian Di Tella & Pablo Kurlat, 2017. "Why are Banks Exposed to Monetary Policy?," NBER Working Papers 24076, National Bureau of Economic Research, Inc.
    6. repec:bpj:sndecm:v:21:y:2017:i:5:p:20:n:3 is not listed on IDEAS
    7. Krishnamurthy, Arvind & Vissing-Jorgensen, Annette, 2015. "The Impact of Treasury Supply on Financial Sector Lending and Stability," CEPR Discussion Papers 10717, C.E.P.R. Discussion Papers.
    8. Glenn Boyle & Roger Stover & Amrit Tiwana & Oleksandr Zhylyevskyy, 2016. "“Honey, the Bank Might Go Bust”: The Response of Finance Professionals to a Banking System Shock," Working Papers in Economics 16/28, University of Canterbury, Department of Economics and Finance.
    9. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2014. "A Model of Monetary Policy and Risk Premia," NBER Working Papers 20141, National Bureau of Economic Research, Inc.
    10. Birchwood, Anthony & Brei, Michael & Noel, Dorian M., 2017. "Interest margins and bank regulation in Central America and the Caribbean," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 56-68.
    11. Judson, Ruth & Schlusche, Bernd & Wong, Vivian, 2014. "Demand for M2 at the Zero Lower Bound: The Recent U.S. Experience," Finance and Economics Discussion Series 2014-22, Board of Governors of the Federal Reserve System (U.S.).
    12. repec:eee:jbfina:v:87:y:2018:i:c:p:164-186 is not listed on IDEAS
    13. Yankov, Vladimir, 2014. "In Search of a Risk-free Asset," Finance and Economics Discussion Series 2014-108, Board of Governors of the Federal Reserve System (U.S.).
    14. Popiel Michal Ksawery, 2017. "Interest rate pass-through: a nonlinear vector error-correction approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(5), pages 1-20, December.
    15. Mora, Nada, 2014. "The weakened transmission of monetary policy to consumer loan rates," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-26.
    16. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1927-1971.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2013-80. 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: (Franz Osorio). General contact details of provider: http://edirc.repec.org/data/frbgvus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.