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THE SENSITIVITY OF THE PRIME RATE TO MONEY MARKET CONDITIONS
Author(s) -
Goldberg Michael A.
Publication year - 1984
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1984.tb00379.x
Subject(s) - prime (order theory) , oligopoly , loan , economics , interest rate , money market , monetary economics , business , microeconomics , financial economics , finance , mathematics , combinatorics , cournot competition
Commercial banking's institutional setting can make one bank's profits dependent upon the pricing strategies of its rivals. In this environment, widely disseminated prime rate quotes, loan contracts with “most‐favored‐customer” clauses, and rule‐of‐thumb pricing techniques can result in prime rate outcomes that jointly maximize banks' market values. In this paper the relationship between the prime and money market rates is examined over the last decade to determine if the prime rate behaves more like a competitive money market rate than an oligopolistic price.