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The pricing behaviour of Australian banks and building societies in the residential mortgage market

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  • Valadkhani, Abbas

Abstract

This paper examines if the dynamic interplay between the Reserve Bank of Australia's (RBA) cash rate and the standard variable mortgage rates of 23 major lenders is subject to both the amount and adjustment asymmetries. Using weekly data (2000–2012), the cash rate and lending rates are pairwise cointegrated. An asymmetric short-run dynamic model is then estimated in which both the size and sign of disequilibria are taken into account. Significant evidence of the adjustment asymmetry is found among 8 lenders (including all foreign subsidiary banks). This paper also finds that the three largest domestic banks pass on the RBA's official rate rises to borrowers more than they do for rate cuts, affecting the efficacy of expansionary versus contractionary monetary policy.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 26 (2013)
Issue (Month): C ()
Pages: 133-151

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Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:133-151

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Mortgage rates; Asymmetric behaviour; Banks; Building societies; Australia;

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Cited by:
  1. Valadkhani, Abbas & Bollen, Bernard, 2013. "An alternative approach to the modelling of interest rate pass through and asymmetric adjustment," Economics Letters, Elsevier, vol. 120(3), pages 491-494.

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