In Search of a Risk-Free Asset: Search Costs and Sticky Deposit Rates

60 Pages Posted: 23 Apr 2012 Last revised: 16 May 2018

Multiple version iconThere are 2 versions of this paper

Date Written: May 13, 2018


To attract time deposits, more than 6,000 banks post their offer rates. I document a large cross-sectional dispersion, negative spreads over Treasuries, and upward rigid adjustments in these rates following federal funds rate increases. Estimates of an oligopoly model reveal a large fraction of high-search-cost and a small declining fraction of low-search-cost investors that can rationalize the observed pricing. Despite high intertemporal elasticity of substitution and technological innovations over the last two decades, the stable large fraction of high-search-cost depositors, mostly elderly households, grants banks significant monopoly power and allows for the sluggish pass-through of increases in the federal funds rate into deposit rates.

Keywords: Deposit rates, Search Costs, Rate rigidity, Rate dispersion, Interest rate pass-through, Coefficient of intertemporal elasticity of substitution, Bank-affiliated money market mutual funds, Limited deposit insurance

JEL Classification: D83, D91, G12, G21

Suggested Citation

Yankov, Vladimir, In Search of a Risk-Free Asset: Search Costs and Sticky Deposit Rates (May 13, 2018). 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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