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In Search of a Risk-Free Asset

50 Pages Posted: 23 Apr 2012 Last revised: 10 Apr 2014

Vladimir Yankov

Federal Reserve Board

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2014


To attract retail time deposits, over 7,000 FDIC insured U.S. commercial banks publicly post their yield offers. I document an economically sizable and highly pro-cyclical cross-sectional dispersion in these yield offers during the period 1997-2011. Banks adjusted their yields rigidly with median duration of 7 weeks in response to increasing or constant Fed Funds rate target regimes and 3 weeks during regimes of decreasing Fed Fund rate target. I investigate to what extent information (search) costs on the part of the investors in this market can explain the observed pricing behavior. I build and estimate an asset pricing model with heterogeneous search cost investors. A large fraction of high information cost uninformed investors and the exit of low information cost informed investors rationalizes the observed price dispersion. I further qualitatively match the asymmetric yield rigidity within the framework of costly consumer search without the need to impose menu costs or other restrictions on the banks' repricing behavior.

Keywords: Consumer search, Price rigidity, Deposit rates, Interest rate pass-through

JEL Classification: D83, D91, G12, G21

Suggested Citation

Yankov, Vladimir, In Search of a Risk-Free Asset (March 28, 2014). Available at SSRN: or

Vladimir Yankov (Contact Author)

Federal Reserve Board ( email )

20th & Constitution Ave. NW
Washington, DC 20551
United States
+1-202-912-7829 (Phone)


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