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The Rigidity of Prices: Evidence from the Banking Industry
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Journal Article
The Rigidity of Prices: Evidence from the Banking Industry
1991
Overview
Studies have found evidence of price rigidity in a variety of different industries. This paper employs a data set that offers numerous advantages over those used previously to investigate how price rigidity varies across firms and markets. It also addresses the unresolved issue of asymmetry between upward and downward price changes and discusses alternative explanations for the results obtained. The examination focuses on the setting of deposit interest rates by banks. Primary findings are that price rigidity is significantly greater in markets characterized by higher levels of concentration and that deposit rates are significantly more rigid when the stimulus for a change is upward rather than downward. The latter result is analogous to the finding of great downward price rigidity in the more typical case in which prices are paid to the firm, rather than by the firm, and contrasts with the finding of no asymmetry recently reported by Carlton (1986).
Publisher
American Economic Association,American Economic Assoc
Subject
