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Do pricing points help explain rigidities in the setting of retail interest rates?

Lookup NU author(s): Dr Robert Anderson, Professor Robert Hudson, Dr Gang Yi

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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).


Abstract

Understanding of how prices and other measures of value are established and change is critical to modern economics. Specifically, price stickiness often observed in goods and labour markets leading to a sluggish adjustment process from the micro to macro level and competitive concerns. This study examines this phenomena through assessing the prevalence of pricing points or convenience pricing in the market for retail savings products. A database of interest rates (the price of a savings product) representative of the UK retail deposit account market from 1989 to 2011 is used to examine whether price stickiness is conditional on the direction of price change and the scale of the prevailing interest rate. Using a 100-state Markov chain process, we find evidence that rates tend cluster around certain endings and that stickiness is conditional on the direction of the price change. This finding is consistent with a profit maximising bank strategy.


Publication metadata

Author(s): Anderson RDJ, Ashton JK, Hudson RS, Yi G

Publication type: Conference Proceedings (inc. Abstract)

Publication status: Published

Conference Name: International Finance and Banking Society 7th International Conference

Year of Conference: 2015

Online publication date: 29/06/2015

Acceptance date: 25/03/2015

Date deposited: 05/09/2017

Publisher: International Finance and Banking Society

URL: http://www.ifabs.org/conference/item/53


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