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Price Movements in the Canadian Residential Mortgage Market

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Author Info
Jason Allen
Darcey McVanel

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Abstract

The authors empirically analyze the price-setting behaviour of the major Canadian banks in the residential mortgage market over the period 1991–2007. They use weekly posted prices of the major mortgage providers to study the degree of competition in mortgage price setting. Their results suggest that the residential mortgage market is imperfectly competitive. They find distinct price leaders and that, as market concentration increases, so does price dispersion - helped by the increased use of discounting from posted prices. The authors also find that, although banks' pass-through of input price changes to mortgage prices is complete in the long run under reasonable assumptions regarding discounting, there exists some level of pricing asymmetry in the short run.

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File URL: http://www.bankofcanada.ca/en/res/wp/2009/wp09-13.pdf
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Publisher Info
Paper provided by Bank of Canada in its series Working Papers with number 09-13.

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Length: 35 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:bca:bocawp:09-13

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Web page: http://www.bank-banque-canada.ca/

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Related research
Keywords: Financial Financial institutions; Financial services;

Other versions of this item:

Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
D4 - Microeconomics - - Market Structure and Pricing

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Benoît Mojon, 2000. "Financial structure and the interest rate channel of ECB monetary policy," Working Paper Series 40, European Central Bank. [Downloadable!]
  2. Boris Hofmann & Paul Mizen, 2004. "Interest Rate Pass-Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates," Economica, London School of Economics and Political Science, vol. 71, pages 99-123, 02. [Downloadable!] (restricted)
  3. Neumark, David & Sharpe, Steven A, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 657-80, May. [Downloadable!] (restricted)
    Other versions:
  4. Toolsema, Linda A. & Jacobs, Jan, 2001. "Why do prices rise faster than they fall? : with an application to mortgage rates," CCSO Working Papers 200106, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
    Other versions:
  5. Jason Allen & Ying Liu, 2007. "A Note on Contestability in the Canadian Banking Industry," Discussion Papers 07-7, Bank of Canada. [Downloadable!]
  6. Jason Allen & Robert Amano & David P. Byrne & Allen W. Gregory, 2006. "Canadian City Housing Prices and Urban Market Segmentation," Working Papers 06-49, Bank of Canada. [Downloadable!]
  7. Jason Allen & Robert Clark & Jean-François Houde, 2008. "Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry," Working Papers 08-32, Bank of Canada. [Downloadable!]
  8. Leo de Haan & Elmer Sterken, 2005. "Asymmetric Price Adjustment in the Dutch Mortgage Market," DNB Working Papers 061, Netherlands Central Bank, Research Department. [Downloadable!]
  9. Raskovich, Alexander, 2007. "Competition or collusion? Negotiating discounts off posted prices," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 341-354, April. [Downloadable!] (restricted)
  10. Alexakis, Panayotis & Apergis, Nicholas, 1996. "ARCH effects and cointegration: Is the foreign exchange market efficient?," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 687-697, May. [Downloadable!] (restricted)
  11. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213. [Downloadable!] (restricted)
  12. Coccorese, Paolo, 2005. "Competition in markets with dominant firms: A note on the evidence from the Italian banking industry," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1083-1093, May. [Downloadable!] (restricted)
  13. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn. [Downloadable!] (restricted)
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