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Deposit Rate Asymmetry and Edgeworth Cycles after Hong Kong’s Interest Rate Deregulation

In: Banking and Finance Issues in Emerging Markets

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  • Michael K. Fung

Abstract

A full Edgeworth cycle of deposit rate is divided into two phases: an “overcutting cycle” in which the banks battle for deposits, and a “relenting cycle” in which the banks cease battling and instead choose to restore a temporarily low deposit rate. Such strategies have two testable implications on overall market movements. First, deposit rate decreases are more likely to be initiated when the deposit rate is near the upper bound of a cycle. Second, deposit rate decreases are more sensitive than increases to market interest rate changes. This chapter empirically confirms this pattern and shows strong evidence for the presence of Edgeworth cycles in deposit rates after Hong Kong’s interest rate deregulation.

Suggested Citation

  • Michael K. Fung, 2018. "Deposit Rate Asymmetry and Edgeworth Cycles after Hong Kong’s Interest Rate Deregulation," International Symposia in Economic Theory and Econometrics, in: Banking and Finance Issues in Emerging Markets, volume 25, pages 105-121, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-038620180000025006
    DOI: 10.1108/S1571-038620180000025006
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    More about this item

    Keywords

    Deposit rate; deregulation; Edgeworth cycle; Hong Kong banks; asymmetry; interest rate rules; E43; G21; L43;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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