Sticky Deposit Rates

42 Pages Posted: 31 Mar 2013 Last revised: 3 Oct 2013

John C. Driscoll

Federal Reserve Board

Ruth Judson

Board of Governors of the Federal Reserve - Division of International Finance

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2013

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.

Keywords: asymmetric price adjustment, banks, interest rates

JEL Classification: E4, G21

Suggested Citation

Driscoll, John C. and Judson, Ruth, Sticky Deposit Rates (October 1, 2013). Available at SSRN: https://ssrn.com/abstract=2241531 or http://dx.doi.org/10.2139/ssrn.2241531

John C. Driscoll (Contact Author)

Federal Reserve Board ( email )

20th and C Streets, NW
Washington, DC 20551
United States

HOME PAGE: http://www.federalreserve.gov/econresdata/john-c-driscoll.htm

Ruth A. Judson

Board of Governors of the Federal Reserve - Division of International Finance ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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