A threshold cointegration analysis of interest rate pass-through to UK mortgage rates
AbstractThis paper empirically analyses the interest rate transmission mechanism in the United Kingdom by exploring the pass-through of the official rate to the money market rate and of the market rate to the mortgage rate. Potential asymmetries, due to financial market conditions and monetary policy, lead to the use of a nonlinear threshold error-correction model, with hypothesis tests based on nonstandard bootstrap procedures that take into account the discrete nature of changes in the official rate. The empirical results indicate the presence of substantial asymmetries in both steps of the process, with these asymmetries depending on past changes in the money market rate and whether these are motivated by official rate changes. Generalized impulse response function analysis shows that adjustments differ with regard to the sign and magnitude of interest rate changes in a way that is consistent with conditions in the interbank and mortgage markets over the recent period.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 29 (2012)
Issue (Month): 6 ()
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Web page: http://www.elsevier.com/locate/inca/30411
Interest rate transmission; Mortgage rates; Nonlinear cointegration;
Other versions of this item:
- Ralf Becker & Denise R Osborn & Dilem Yildirim, 2010. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Centre for Growth and Business Cycle Research Discussion Paper Series 141, Economics, The Univeristy of Manchester.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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