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Demand elasticity for deposit services at U.S. retail banks in high and low rate environments

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  • Noam Tanner
  • Danielle Zanzalari
  • Mark Manion
  • Eric Haavind-Berman

Abstract

Using techniques from industrial organization, we capture the sensitivity of deposit balances to own and competitor pricing by estimating demand functions in U.S. retail deposit markets. The demand functions are used to compute elasticities of demand for bank deposits in order to study the relative importance of deposit rates over different interest rate environments. We find that the magnitudes of own- and cross-price elasticities are higher in high rate periods (when the federal funds rate is above 2%) than in low rate periods. We also compare different sized firms and find that smaller firms’ elasticities are more sensitive to the interest rate cycle.

Suggested Citation

  • Noam Tanner & Danielle Zanzalari & Mark Manion & Eric Haavind-Berman, 2021. "Demand elasticity for deposit services at U.S. retail banks in high and low rate environments," Applied Economics, Taylor & Francis Journals, vol. 53(47), pages 5448-5461, October.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:47:p:5448-5461
    DOI: 10.1080/00036846.2021.1923636
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    Cited by:

    1. Enzo Dia & David VanHoose, 2022. "Unconventional-Policy Spillovers of U.S. Interest on Reserves within Global Dollar-Denominated Retail Loan and Deposit Markets," CRANEC - Working Papers del Centro di Ricerche in Analisi economica e sviluppo economico internazionale crn2203, Università Cattolica del Sacro Cuore, Centro di Ricerche in Analisi economica e sviluppo economico internazionale (CRANEC).
    2. Tayyaba Rani & Feng Wang & Fawad Rauf & Qurat ul Ain & Hamid Ali, 2023. "Linking personal remittance and fossil fuels energy consumption to environmental degradation: evidence from all SAARC countries," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(8), pages 8447-8468, August.

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