Bank deposit interest rate pass-through and geographical segmentation in Japanese banking markets |
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| Affiliation: | 1. James Madison University, Harrisonburg, VA, USA;2. University of Dayton, Dayton, OH, USA;1. Centre for Studies in Social Sciences, India;2. The Hong Kong Polytechnic University, Hong Kong;1. Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore, 18 Evans Road, Singapore 259364, Singapore;2. Lee Kuan Yew School of Public Policy, National University of Singapore, 469C Bukit Timah Road, Singapore 259772, Singapore |
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| Abstract: | This paper estimates the pass-through from market interest rates to deposit interest rates to investigate whether the Japanese bank deposit markets are geographically segmented. A unique feature of this paper is the use of monthly deposit interest rates posted by 106 regional banks from March 1999 to March 2010. Following the theoretical results from a simple banking activity model with Cournot competition, I estimate the long run pass-through of each regional bank utilizing the panel cointegration method. The empirical results of this paper show a significant negative correlation between regional market concentration and pass-through, which implies the existence of geographical market segmentation. |
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| Keywords: | Interest rate pass-through Geographical segmentation Panel cointegration |
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