The Determinants of Supply and Demand For Certificates of Deposit.

The purpose of this study is to isolate the supply and demand determinants of commercial bank certificates of deposit (CDs). In section I, models are developed to explain the supply price of both negotiable and non- negotiable CDs, and single-equation regression results are presented. In section II, a model is developed to explain the demand for CDs by corporations and individuals, and single equation regression results are reported. In section III, the model is re- estimated by structural methods to account for simultaneity in CD supply and demand interactions. A simulation study is then undertaken to assess the impact on the endogenous variables of changes in Regulation Q ceiling rates. A summary of the findings are presented in section IV. The time period of these statistical investigations covers the twenty-six quarters from the third quarter 1961 through the fourth quarter 1967. The usual regression criteria are used for evaluation: goodness of fit (R2); the extent to which the signs of the regression coefficients agree with prior expectations; the f-test for the significance of the regression coefficients; and by the Durbin-Watson statistic (DW) which measures the degree to which the regression residuals exhibit serial correlation. [ABSTRACT FROM AUTHOR]