Deposit Rate Asymmetry and Edgeworth Cycles after Hong Kong’s Interest Rate Deregulation

Banking and Finance Issues in Emerging Markets

ISBN: 978-1-78756-454-1, eISBN: 978-1-78756-453-4

ISSN: 1571-0386

Publication date: 4 October 2018

Abstract

A full Edgeworth cycle of deposit rate is divided into two phases: an “overcutting cycle” in which the banks battle for deposits, and a “relenting cycle” in which the banks cease battling and instead choose to restore a temporarily low deposit rate. Such strategies have two testable implications on overall market movements. First, deposit rate decreases are more likely to be initiated when the deposit rate is near the upper bound of a cycle. Second, deposit rate decreases are more sensitive than increases to market interest rate changes. This chapter empirically confirms this pattern and shows strong evidence for the presence of Edgeworth cycles in deposit rates after Hong Kong’s interest rate deregulation.

Keywords

Citation

Fung, M. (2018), "Deposit Rate Asymmetry and Edgeworth Cycles after Hong Kong’s Interest Rate Deregulation", Banking and Finance Issues in Emerging Markets (International Symposia in Economic Theory and Econometrics, Vol. 25), Emerald Publishing Limited, pp. 105-121. https://doi.org/10.1108/S1571-038620180000025006

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Emerald Publishing Limited

Copyright © 2018 Emerald Publishing Limited

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