Money creation and banks’ interest rate setting
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 14 July 2021
Issue publication date: 16 February 2022
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