Abstract
The relationship between wholesale and retail interest rates since deregulation is of substantial interest to economists and policymakers, because the predictability of the monetary aggregates and their relationship to bank reserves depend on adjustment patterns in the wholesale and retail money markets. We provide evidence on the nature of wholesale–retail interest rate relationships by examining the dynamic interactions among two wholesale interest rates (federal funds and six-month treasury bills) and three retail deposit rates (six-month consumer certificates of deposit, money market deposit accounts, and super NOW's). We perform a multivariate time series analysis, with particular attention paid to causal patterns and the shapes of impulse- response functions. A number of stylized facts, related to size of adjustment, speed of adjustment, and pattern of adjustment, are established for the response of retail rates to unanticipated shocks in wholesale rates.
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