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Interest rate pass through and asymmetries in adjustable rate mortgages

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  • James Payne

Abstract

This study extends the recent work on interest rate pass through from the federal funds rate to mortgage rates. The Enders-Siklos (2001) momentum threshold autoregressive (MTAR) model is used to test for cointegration and asymmetric adjustment in adjustable rate mortgages for newly built and previously owned homes over the federal funds targeting period 1987:2 to 2005:6. Based on the MTAR specification, the respective adjustable rate mortgages and the federal funds rate are cointegrated but with incomplete interest rate pass through. The results also indicate asymmetries in the response of the adjustable rates to changes in the federal funds rate.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100601018872
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 17 (2007)
Issue (Month): 17 ()
Pages: 1369-1376

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Handle: RePEc:taf:apfiec:v:17:y:2007:i:17:p:1369-1376

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Cited by:
  1. Abbas Valadkhani & Sajid Anwar & Amir Arjonandi, 2012. "How to capture the full extent of price stickiness in credit card interest rates?," Economics Working Papers, School of Economics, University of Wollongong, NSW, Australia wp12-02, School of Economics, University of Wollongong, NSW, Australia.
  2. Abbas Valadkhani & Amir Arjomandi & Martin O'Brien, 2013. "Does the interest rate for business loans respond asymmetrically to changes in the cash rate?," Applied Economics Letters, Taylor & Francis Journals, vol. 20(9), pages 869-874, June.
  3. Becker, Ralf & Osborn, Denise R. & Yildirim, Dilem, 2012. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Economic Modelling, Elsevier, vol. 29(6), pages 2504-2513.
  4. Dilem Yildirim, 2012. "Interest Rate Pass-Through to Turkish Lending Rates: A Threshold Cointegration Analysis," ERC Working Papers 1207, ERC - Economic Research Center, Middle East Technical University, revised Sep 2012.
  5. 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, Elsevier, vol. 26(C), pages 133-151.
  6. Abbas Valadkhani & Sajid Anwar, 2012. "Interest Rate Pass-Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 341-350, 09.

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