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Money creation and banks’ interest rate setting

Alexey Ponomarenko (Bank Rossii, Moskva, Russian Federation)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 14 July 2021

Issue publication date: 16 February 2022

112

Abstract

Purpose

This study aims to examine a potential case of interdependence in loan and deposit interest rate setting.

Design/methodology/approach

The authors set up a theoretical microsimulation model with endogenous loan interest rate determination via a learning algorithm.

Findings

The authors show that in certain environments, it may be beneficial for large banks to incorporate information on retail funding costs into the lending rate setting decision.

Originality/value

The author’s model is based on the realistic money creation mechanism.

Keywords

Acknowledgements

The author-created, un-copyedited versions of this article are available as Ponomarenko (2020a, 2020b).The author is grateful to Sergei Seleznev and the anonymous referees for their helpful comments and suggestions. The views expressed in this paper are those of the author and do not necessarily represent the position of the Bank of Russia.

Citation

Ponomarenko, A. (2022), "Money creation and banks’ interest rate setting", Journal of Financial Economic Policy, Vol. 14 No. 2, pp. 141-151. https://doi.org/10.1108/JFEP-10-2020-0214

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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