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Base rate pass-through: evidence from banks' and building societies' retail rates

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  • Paul Mizen
  • Boris Hofmann

Abstract

Official interest rate changes are intended to influence short rates on money market instruments and retail products, such as deposit accounts and mortgages, and complete pass-through is often simply taken for granted. In this paper a theoretical and econometric framework for assessing the evidence for this assumption is provided, using 14 years of monthly data for interest rates on deposit and mortgage products offered by UK banks and building societies. The method employed allows for asymmetries and non-linearities in adjustment and the results show that the speed of adjustment in retail rates depends on whether the perceived 'gap' between retail and base rates is widening or narrowing.

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Paper provided by Bank of England in its series Bank of England working papers with number 170.

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Date of creation: Dec 2002
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Handle: RePEc:boe:boeewp:170

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Cited by:
  1. Jesús Crespo-Cuaresma & Balázs Égert & Thomas Reininger, 2004. "Interest Rate Pass-Through in New EU Member States: The Case of the Czech Republic, Hungary and Poland," William Davidson Institute Working Papers Series 2004-671, William Davidson Institute at the University of Michigan.
  2. Sebastian Barnes & Gregory Thwaites, 2005. "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England.
  3. Boris Hofmann, 2003. "Bank Lending and Property Prices: Some International Evidence," Working Papers 222003, Hong Kong Institute for Monetary Research.
  4. Chmielewski, Tomasz, 2003. "Interest rate pass-through in the Polish banking sector and bank-specific financial disturbances," MPRA Paper 5133, University Library of Munich, Germany, revised 31 Jan 2004.
  5. Kauko , Karlo, 2005. "Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data," Research Discussion Papers 9/2005, Bank of Finland.
  6. Solange Berstein & Rodrigo Fuentes, 2005. "Concentration and Price Rigidity: Evidence for the Deposit Market in Chile," Working Papers Central Bank of Chile 311, Central Bank of Chile.
  7. Ananthakrishnan Prasad & Raphael A. Espinoza, 2012. "Monetary Policy Transmission in the GCC Countries," IMF Working Papers 12/132, International Monetary Fund.

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