The Relationships between Mortgage Rates and Capital-Market Rates under Alternative Market Conditions
AbstractMortgage interest rates have become more integrated with other capital-market interest rates over recent decades, apparently as a result of the deregulation of financial markets. The link is both imperfect and time-varying. Mortgage rates during some time periods appear to be "sticky" with respect to their adjustment to changes in capital-market rates. We examine the relationship between weekly conventional mortgage rates and the interest rates on treasury and corporate securities under differing market conditions. We draw three conclusions based on the analysis. First, deregulation changed the link between mortgage rates and riskless interest rates, which confirms the findings of Goebel and Ma (1993). Second, mortgage rates were cointegrated with risky interest rates even before deregulation. Third, the link between mortgage rates and the risky bond rate can be associated with the behavior of the risk premium in the bond rate. The observed relationship is consistent with the stickiness observed by Haney (1988) and causes a more pronounced stickiness when rates are falling than when they are rising. Copyright 1999 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Real Estate Finance & Economics.
Volume (Year): 19 (1999)
Issue (Month): 3 (November)
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Web page: http://www.springerlink.com/link.asp?id=102945
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- Maria Arbatskaya & Michael R. Baye, 2004.
"Are Prices ‘Sticky’ Online? Market Structure Effects and Asymmetric Responses to Cost Shocks in Online Mortgage Markets,"
2004-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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- Valadkhani, Abbas, 2013. "The pricing behaviour of Australian banks and building societies in the residential mortgage market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 133-151.
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