Time-varying mark-up and the ECB monetary policy transmission in a highly non linear framework

Cifarelli, Giulio; Paladino, Giovanna

doi:10.1016/j.iref.2016.06.001

Cited by 8 publications

(8 citation statements)

References 25 publications

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“…Overall, we find all sampled banks asymmetrically adjusted their home-loan rates downwards during and after the GFC. These findings, which are consistent with Cifarelli and Paladino (2016), verify our anticipation that banks' foreign debt is a key element in explaining the misalignment of mortgage rates with the cash rate after the crisis. The key potential reason for this finding is that, due to the GFC, higher risk premiums in the money markets have induced higher funding costs for banks (Cifarelli & Paladino, 2016;ECB, 2013).…”

Section: Mortgage Rate Pass-through: Sub-sample Analysissupporting

confidence: 89%

“…This significant reduction in competitive pressure associated with the highly concentrated market can induce asymmetry and a greater long-run markup because of increases in dominant banks' market pricing power. Asymmetry also can occur in the post-crisis period because of increases in bank funding costs (Cifarelli & Paladino, 2016;ECB, 2013). Australian mortgage lenders have shifted their short-term into long-term wholesale borrowing since the GFC (Deans & Stewart, 2012), so they are unlikely to finance mortgages with foreign funds cheaper than prior to the crisis.…”

Section: The Gfc Impact On the Irptmentioning

confidence: 99%

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Mortgage asymmetric pricing, cash rate and international funding cost: Australian evidence

Holland

Liu

Roca

et al. 2020

International Review of Economics & Finance

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This study investigates asymmetry in the interest-rate pass-through at the bank level in Australia over the period 2002:7-2015:12 in a distinctive manner. First, we examine the transmission of the foreign-funds rate, in parallel with the cash rate, to bank mortgage rates.Second, we utilize the Nonlinear Auto-Regressive Distributed Lag (NARDL) framework of Shin et al. (2014) in panel form to capture both the time-variation and cross-section variation within bank groups. Third, we simultaneously explore heterogeneous asymmetry in the passthrough for funding cost increases and decreases on impact, in the short term and in the long term. Our results reaffirm the asymmetric relationship between the cash rate and mortgage rates. We validate that international funding costs do indeed asymmetrically drive mortgage rates. The heterogeneous asymmetry in interest-rate pass-through found in both full-and subsample analyses signifies that market pricing power exists in which the major banks are the most powerful in mortgage pricing, while the smaller lenders are price-takers. These findings provide important implications for policy makers, investors, and the public.

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Section: Mortgage Rate Pass-through: Sub-sample Analysissupporting

confidence: 89%

Section: The Gfc Impact On the Irptmentioning

confidence: 99%

Mortgage asymmetric pricing, cash rate and international funding cost: Australian evidence

Holland

Liu

Roca

et al. 2020

International Review of Economics & Finance

View full text Add to dashboard Cite

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“…11 Gambacorta et al (2015), Bondt (2005), Mihaylov (2016), Grigoli and Mota (2017), Chileshe and Akanbi (2016). 12 Holton and d'Acri (2015), Cifarelli and Paladino (2016). 13 For instance, this paper includes in vector foreign exchange interventions as an unconventional monetary policy tool.…”

mentioning

confidence: 97%

The pass-through of monetary policy rate to lending rates: The role of macro-financial factors

Gregora

Melecký

2018

Economic Modelling

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“…We find the positive response of mortgage rates to the cash rate only, because in this period the policy rate constantly increases. Since the GFC, mortgage rates have been continuously associated with foreign-funds rate developments, consistent with Cifarelli and Paladino ( 2016). Banks have asymmetrically priced their mortgages upwards at high levels.…”

Section: Asymmetric Pass-through Analysismentioning

confidence: 81%

International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis

2018

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This study examines the transmission of the cost-of-funds rates, domestically and internationally, to owner-occupied housing interest rates at the bank level for the period 2002(7)-2015(12) in Australia. Three main issues, cross-sectional dependence, parameter heterogeneity, and asymmetry, have been considered using the linear and nonlinear commonfactor Augmented Mean Group estimators. Significant unobservable coefficients in all estimates ascertain that unobserved common factors arising from both national and global shocks have a significant influence on mortgage rate transmission. The results of sizable heterogeneity and asymmetry, found in all estimates while controlling for cross-sectional correlations, highlight the substantial effect of the foreign-funds rate on long-run mortgage price-setting. We find a closer connection between mortgage interest rates and international funding cost; we have also confirmed a declining transmission of the policy rate after the 2008 global financial crisis. Keywords Asymmetry, heterogeneity, cross-sectional dependence, interest rate pass-through, bank mortgages, AMG models JEL Classifications G21, E43, E52, E58 of funds reflects the whole range of diverse liabilities (Fabbro & Hack 2011). Recent global extreme shocks have induced a higher level of credit risk, liquidity risk, and competition, making the cost of market funding more expensive (ECB 2013). These significant changes in world financial markets violate the underlying assumption of an alignment between policy rates and retail interest rates (Naraidoo & Raputsoane 2015). This study examines heterogeneity and asymmetry in the transmission of the cost-of-funds rates, domestically and internationally, to home-loan interest rates, controlling for crosssection dependence. Our country selection has been made owing to the importance of Australian housing and housing finance markets from the perspectives of an effective monetary policy and wealth effects on consumption (Jansen 2013; Robstad 2018). Australia is one of the top five world largest mortgage markets, just standing behind Denmark, Norway, and Netherlands, whose ratios of total mortgage credit to annual economy output (GDP) are greater than 100% (IMF 2017). Globally, Australia possesses the highest ratio of housing loans to total bank loans at 64%, a ratio that has continuously increased since the GFC (IMF 2017). Its mortgage market is highly oligopolistic: the dominance of four major banks constitutes over 85% of total market share (presented in Fig. B1, Appendix B). Only Australia, of these five, raises considerable mortgage funds from wholesale sources; the others source their funds mainly from domestic deposits. A significant portion, around 35%, of Australia's mortgage funding is sourced from world financial markets (Ralston & Davis 2011; Wilkins et al. 2016). This heavy reliance on foreign borrowings also poses a serious practical question for policy makers and banking regulators: housing finance markets with these characteristics are highly associated with ho...

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Time-varying mark-up and the ECB monetary policy transmission in a highly non linear framework

Cited by 8 publications

References 25 publications

Mortgage asymmetric pricing, cash rate and international funding cost: Australian evidence

Mortgage asymmetric pricing, cash rate and international funding cost: Australian evidence

The pass-through of monetary policy rate to lending rates: The role of macro-financial factors

International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis

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