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Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits

Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits Abstract Panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks. Banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates, but are faster to reduce them in response to declining market interest rates. Thus, banks with market power skim off surplus on movements in both directions. Since deposit interest rates are inversely related to the price charged by banks for deposits, the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration. * We would like to thank Swati Bhatt, John Duca, Cara Lown, Glenn Rude-busch, Peter Zemsky, and participants in the Federal Reserve Board research workshop and the Wharton School macrofinance seminar for helpful comments. Extensive research assistance was provided by Gerhard Fries. This research was completed while both authors were employed at the Board of Governors of the Federal Reserve System. The views expressed herein are solely those of the authors. This content is only available as a PDF. © 1992 by the President and Fellows of Harvard College http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Quarterly Journal of Economics Oxford University Press

Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits

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References (8)

Publisher
Oxford University Press
Copyright
© 1992 by the President and Fellows of Harvard College
ISSN
0033-5533
eISSN
1531-4650
DOI
10.2307/2118485
Publisher site
See Article on Publisher Site

Abstract

Abstract Panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks. Banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates, but are faster to reduce them in response to declining market interest rates. Thus, banks with market power skim off surplus on movements in both directions. Since deposit interest rates are inversely related to the price charged by banks for deposits, the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration. * We would like to thank Swati Bhatt, John Duca, Cara Lown, Glenn Rude-busch, Peter Zemsky, and participants in the Federal Reserve Board research workshop and the Wharton School macrofinance seminar for helpful comments. Extensive research assistance was provided by Gerhard Fries. This research was completed while both authors were employed at the Board of Governors of the Federal Reserve System. The views expressed herein are solely those of the authors. This content is only available as a PDF. © 1992 by the President and Fellows of Harvard College

Journal

The Quarterly Journal of EconomicsOxford University Press

Published: May 1, 1992

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