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A Model of Building Society Interest Rate Setting

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  • Joanna Paisley
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    Abstract

    This paper examines the interest rate setting behaviour of building societies since the breakdown of the interest rate cartel in 1984. Societies have faced increasing competition in the mortgage and savings market over this period, against a backdrop of radical regulatory change. The paper develops a profit-maximising model of societies on which econometric analysis is based. The empirical analysis indicates that libor drives the pricing on both sides of the balance sheet. The performance of the estimated equations was good, given the regulatory and behavioural change of the institutions and the turbulence of the housing market over this period. It is interesting that real side variables - such as house price volatility and unemployment - were found to be insignificant.

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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1994/wp22.pdf
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    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 22.

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    Date of creation: Jun 1994
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    Handle: RePEc:boe:boeewp:22

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    Cited by:
    1. Ralf Becker & Denise R Osborn & Dilem Yildirim, 2010. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Centre for Growth and Business Cycle Research Discussion Paper Series, Economics, The Univeristy of Manchester 141, Economics, The Univeristy of Manchester.
    2. John Ashton & Andros Gregoriou, 2012. "The Influence of Banking Centralisation on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy," Working Papers 12005, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    3. A.H. Ahmad & Nusrate Aziz & Shahina Rummun, 2013. "Interest Rate Pass-Through in the UK: Has the Transmission Mechanism Changed During the Financial Crisis?," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 18(1), pages 17-38, March.

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