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Testing the law of one price in retail banking: An analysis for Colombia using a pair-wise approach

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  • Iregui, Ana María
  • Otero, Jesús

Abstract

We apply a pair-wise approach to test the law of one price for deposit (lending) rates in Colombia. We find that when banks are of different sizes, deposit rates adjust quickly, suggesting a competitive environment. By contrast, lending rates adjust rapidly when banks are of similar sizes, supporting market segmentation.

Suggested Citation

  • Iregui, Ana María & Otero, Jesús, 2013. "Testing the law of one price in retail banking: An analysis for Colombia using a pair-wise approach," Economics Letters, Elsevier, vol. 118(1), pages 29-32.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:29-32
    DOI: 10.1016/j.econlet.2012.09.013
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    6. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688, Elsevier.
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    10. Massimiliano Affinito & Fabio Farabullini, 2009. "Does the Law of One Price Hold in Euro-Area Retail Banking? An Empirical Analysis of Interest Rate Differentials across the Monetary Union," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 5-37, March.
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    Cited by:

    1. Holmes, Mark J. & Iregui, Ana María & Otero, Jesús, 2019. "Interest rate convergence across maturities: Evidence from bank data in an emerging market economy," The North American Journal of Economics and Finance, Elsevier, vol. 49(C), pages 57-70.
    2. Ribeiro, Eduardo Pontual & Castor, Kamaiaji, 2019. "Inferring bank-to-bank competition from dynamic time series analysis of price correlations," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 56, pages 62-73.
    3. Anna Burova & Alexey Ponomarenko & Svetlana Popova & Andrey Sinyakov & Yulia Ushakova, 2022. "Measuring Heterogeneity in Banks’ Interest Rate Setting in Russia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(14), pages 4103-4119, November.

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    More about this item

    Keywords

    Law of one price; Retail interest rates; Colombia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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