ECONOMETRIC MODELS OF THE SAVINGS DEPOSIT MARKET: DEVELOPMENT AND DEMAND AMONG US RETAIL BANKS, 1970S AND 1980S

From the 1960s, the rising volatility of financial markets in the US troubled econometricians and bank managers alike. Both found it increasingly difficult to forecast savings deposit flows. This article explores these challenges by focusing on two developments. First, it analyzes the adjustment process among econometric models of the savings deposit market. I combine the analysis of the FMP model used by the Fed since 1970 and the deposit model of the Philadelphia Saving Fund Society (PSFS), thereby pioneering the historical analysis of econometric models built by private financial institutions. I find that economists failed to discover timeless determinants for deposit flows. Second, I explore how the conditions of the savings deposit market shaped the demand for macroeconomic forecast models, using the PSFS as a case study. I show that while the rising volatility led bank managers to seek sophisticated tools to predict deposit flows, the deregulation of the banking industry put the forecasting quality of macroeconomic models for individual banks to the test.