Modeling the Whole Firm: The Effect of Multiple Inputs and Financial Intermediation on Bank Deposit Rates

Topics:
Commercial Banking
Tags:
Bank,
Deposit Rate,
Financial,
Modeling
Source:
Federal Reserve Board

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Overview: Empirical studies of price competition typically analyze the direct effects of market structure, cost, and local demand on prices; this approach has been applied widely to studies of bank deposit rates. This paper develops a theoretical model to incorporate these effects, and tests the predictions empirically using institution-level deposit rate data from Bank Rate Monitor. The results suggest that the cost of large- scale deposits affects how banks price retail deposits, and that conditions in lending markets feed back into retail deposit rates.

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Format: PDF | Size: 705KB | Date: Jun 2003 | Pages: 46

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