I have historical deposit rate data for a specific bank. I want to determine the sensitivity of deposit rates to market rate changes (I'll be using Fed Funds rate). My question is, what would be an appropriate linear regression formula for doing this? I'm assuming a simple OLS regression will work, but I'm some what confused on how to set up the equation, and whether the equation will need to use a lag. Thanks.

  • $\begingroup$ Hi and welcome! Some questions: what is the frequency at which you look at the data (monthly, quarterly)? Do you know whether the deposit rate was set according to the market rate? Sometimes this is not fully the case ... there could be a lot of lag and then there is the decision of some mgmt body to change the deposit rate. On the other hand there might be products that are highly sensitive. Do you have a feeling which situation applies to your setting? $\endgroup$ – Ric Oct 7 '19 at 19:01

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