A threshold cointegration analysis of interest rate pass-through to UK mortgage rates

Becker, Ralf; Osborn, Denise R.; Yıldırım, Dilem

doi:10.1016/j.econmod.2012.08.004

Cited by 44 publications

(23 citation statements)

References 23 publications

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“…There are many further 31 aspects of the interest rate pass-through that can be analyzed but that we do not address. For example, van Leuvensteijn et al (2013) show that bank competition decreases spreads, and Becker et al (2012) document asymmetries in the pass-through mechanism (depending on whether financial market rates increase or decrease). We leave the examination of these relationships in the Czech banking sector for future research when more data are available, especially hikes in the monetary policy rate after the crisis.…”

Section: Discussionmentioning

confidence: 99%

Bank efficiency and interest rate pass-through: Evidence from Czech loan products

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: An important component of monetary policy transmission is the pass-through from financial market interest rates, directly influenced or targeted by central banks, to the rates that banks charge firms and households. Yet the available evidence on the strength and speed of the pass-through is mixed and varies across countries, time periods, and even individual banks. We examine the pass-through mechanism using a unique data set of Czech loan and deposit products and focus on bank-level determinants of pricing policies, especially cost efficiency, which we estimate employing both stochastic frontier and data envelopment analysis. Our main results are threefold: First, the long-term pass-through was close to complete for most products before the financial crisis, but has weakened considerably afterward. Second, banks that provide high rates for deposits usually charge high loan markups. Third, cost-efficient banks tend to delay responses to changes in the market rate, smoothing loan rates for their clients. Terms of use: Documents in

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Section: Discussionmentioning

confidence: 99%

Bank efficiency and interest rate pass-through: Evidence from Czech loan products

2016

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“…Verheyen (2013) presents the results that point to considerable asymmetries especially with regard to the long-run pass-through of money market rate changes as well as some heterogeneity between EMU countries; see also Marotta (2009) and Bernhofer and van Treeck (2013). Outside of the Eurozone, Becker et al (2012) find the presence of substantial asymmetries when exploring the pass-through of the official rate to the money market rate and of the market rate to the mortgage rate in the UK. Hofmann and Mizen (2004) look at deposit and mortgage products offered by individual UK financial institutions and find that the speed of adjustment in retail rates depends on whether the perceived 'gap' between retail and base rates is widening or narrowing.…”

Section: Introductionmentioning

confidence: 95%

Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks

2015

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Using a sample of Colombian banks, we examine retail interest rate adjustment in response to changes in wholesale interest rates. Interest rate pass through running from wholesale to retail rates is found to be both partial and heterogeneous across banks. This suggests that the effectiveness of monetary policy is limited. Further investigation reveals that the behaviour of retail deposit rates appears consistent with collusive behaviour between banks insofar as interest rates are more rapidly adjusted downwards than upwards. In the case of retail lending rates, it appears that banks more rapidly reduce than increase rates. This suggests that expansionary monetary policy in Colombia may be relatively more effective than contractionary policy.

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“…In particular, Tsatsaronis and Zhu (2004) and Mishkin (2007), put forward the argument that housing prices tend to be more volatile in countries with a high ratio of mortgage loans based on variable rates. In supplement to this, authors such as Miles (2004) and Becker et al (2012) report that most mortgage loans in the UK have indeed been offered on the basis of some variable rate. One should expect that higher interest rates could be held responsible for fashioning negative expectations regarding the future lending rates in the economy (this is particularly true for mortgage loans structured on the basis of variable interest rates) resulting in economic agents reluctant to acquire a loan and thus leading to a new circle of uncertainty in the housing market where low supply, on one hand, pushes prices upwards and lower demand for properties, on the other hand, pushes prices downwards.…”

Section: The Role Of Monetary Policy Decision Makingmentioning

confidence: 99%

Asset prices regime-switching and the role of inflation targeting monetary policy

Chatziantoniou

Filis

Floros

2017

Global Finance Journal

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This paper provides the empirical framework to assess whether UK monetary policy shocks induce both the UK housing market and the UK stock market to remain at a high-volatility (risk) environment. The Markov regime switching modelling approach is employed in order to identify two distinct environments for each market; namely, a high-risk environment and a low-risk environment, while a probit model is employed in order to test whether monetary policy shocks provide this predictive information regarding the current state of both markets under consideration. Our findings indicate that monetary policy shocks do indeed have predictive power on the stock market. In addition, in both asset markets there is a key role for inflation. Results are important especially within the framework of the inflation targeting monetary policy regime.

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A threshold cointegration analysis of interest rate pass-through to UK mortgage rates

Cited by 44 publications

References 23 publications

Bank efficiency and interest rate pass-through: Evidence from Czech loan products

Bank efficiency and interest rate pass-through: Evidence from Czech loan products

Interest rate pass through and asymmetries in retail deposit and lending rates: An analysis using data from Colombian banks

Asset prices regime-switching and the role of inflation targeting monetary policy

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