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Interest rate margins: a decomposition of dynamic oligopolistic conduct and market fundamentals

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  • Emanuel Barnea
  • Moshe Kim

Abstract

We propose a model in which the evolution of interest rate margin (markup) in banking is the outcome of two major components: (i) dynamic oligopolistic conduct and (ii) dynamics of market fundamentals. The model is specified such that oligopolistic dynamics are separated from the dynamics of fundamentals. Consistent with the theory, we employ the error-correction model which generates results indicating that margins are significantly different from the traditional measure once fundamentals are filtered out.

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  • Emanuel Barnea & Moshe Kim, 2007. "Interest rate margins: a decomposition of dynamic oligopolistic conduct and market fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 17(6), pages 487-499.
    • Handle: RePEc:taf:apfiec:v:17:y:2007:i:6:p:487-499
    DOI: 10.1080/09603100600690077
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    Cited by:

    1. Gilbert Cette & Rémy Lecat & Ahmed Ould Ahmed Jiddou, 2016. "Margin rate and the cycle: the role of trade openness," Applied Economics, Taylor & Francis Journals, vol. 48(37), pages 3569-3575, August.
    2. Putkuri, Hanna, 2010. "Housing loan rate margins in Finland," Research Discussion Papers 10/2010, Bank of Finland.
    3. Murinde, Victor & Zhao, Tianshu, 2009. "Bank competition, risk taking and productive efficiency: Evidence from Nigeria's banking reform experiments," Stirling Economics Discussion Papers 2009-23, University of Stirling, Division of Economics.
    4. Putkuri, Hanna, 2010. "Housing loan rate margins in Finland," Bank of Finland Research Discussion Papers 10/2010, Bank of Finland.
    5. repec:zbw:bofrdp:2010_010 is not listed on IDEAS

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