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

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Paul Mizen
Boris Hofmann

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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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Handle: RePEc:boe:boeewp:170

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Cited by:
(explanations, 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. 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. [Downloadable!]
  2. Sebastian Barnes & Gregory Thwaites, . "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England. [Downloadable!]
  3. 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. [Downloadable!]
  4. 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 Stephen M. Ross Business School. [Downloadable!]
  5. Rodrigo Fuentes & Solange Berstein, 2004. "Concentration and Price Rigidity: Evidence for the deposit Market in Chile," Econometric Society 2004 Latin American Meetings 67, Econometric Society. [Downloadable!]
    Other versions:
  6. Karlo Kauko, 2005. "Bank interest rates in a small European economy: Some exploratory macro level analyses using Finnish data," Finance 0508020, EconWPA. [Downloadable!]
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