Abstract
This paper focuses on the six-month retail certificate of deposit (CD) rates of large depository institutions in six major cities during 1983-1988 to test the integration of their retail CD markets. Using Granger's (1986) concept of co-integration, we find a long-run equilibrium relationship between the city CD-rate offers and the six-month Treasury bill rate. After filtering out this relationship, a vector autoregressive model is employed with Granger (1969) causality tests to determine the significance of intercity rate dependencies. Our results indicate an increasing number of intercity relations over time, consistent with an emerging integrated market. Since our sample represents a subset of bank CDs for the largest firms operating in six of the nation's largest cities, the results should not be generalized to other smaller bank markets, CD maturities, or bank products. The periods examined are also close together in time, which could affect the robustness of the results.
Published Version
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