EconPapers    
Economics at your fingertips  
 

In Search of a Risk-free Asset

Vladimir Yankov

No 2014-108, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: To attract retail time deposits, over 7,000 FDIC insured U.S. commercial banks publicly post their yield offers. I document an economically sizable and highly pro-cyclical cross-sectional dispersion in these yield offers during the period 1997 - 2011. Banks adjusted their yields rigidly and asymmetrically with median duration of 7 weeks in response to increasing or constant Fed Funds rate target regimes and 3 weeks during regimes of decreasing Fed Fund rate target. I investigate to what extent information (search) costs on the part of the investors in this market can explain the observed pricing behavior. I build and estimate an asset pricing model with heterogeneous search cost investors. A large fraction of high information cost uninformed investors and the exit of low information cost informed investors rationalizes the observed price dispersion. I further qualitatively match the asymmetric yield rigidity within the framework of costly consumer search without the need to impose menu costs or other restrictions on the banks' repricing behavior.

Keywords: Consumer search; deposit rates; interest rate pass-through; price rigidity (search for similar items in EconPapers)
JEL-codes: D83 D91 G12 G21 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2014-08-02
New Economics Papers: this item is included in nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
http://www.federalreserve.gov/econresdata/feds/2014/files/2014108pap.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2014-108

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2025-02-11
Handle: RePEc:fip:fedgfe:2014-108