Sticky Deposit Rates
42 Pages Posted: 31 Mar 2013 Last revised: 3 Oct 2013
Date Written: October 1, 2013
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: Suggested Citation