Money creation and banks’ interest rate setting

Alexey Ponomarenko

Journal of Financial Economic Policy, 2021, vol. 14, issue 2, 141-151

Abstract: Purpose - This study aims to examine a potential case of interdependence in loan and deposit interest rate setting. Design/methodology/approach - The authors set up a theoretical microsimulation model with endogenous loan interest rate determination via a learning algorithm. Findings - The authors show that in certain environments, it may be beneficial for large banks to incorporate information on retail funding costs into the lending rate setting decision. Originality/value - The author’s model is based on the realistic money creation mechanism.

Keywords: Banks; Money and interest rates; Simulation modeling; Money supply; Lending rates; Deposit rates; Agent-based model; E43; E51; G21; C63 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-10-2020-0214

DOI: 10.1108/JFEP-10-2020-0214

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