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Modelling New Zealand mortgage interest rates?

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    Abstract

    Determinants of New Zealand mortgage interest rates are examined, including how changes in the OCR are transmitted through the wholesale cost of funds to mortgage rates. Mortgage rates are modelled as a mark-up over banks' marginal funding cost. The results suggest that banks frequently diverge from a simple marginal cost-pricing model. Marginal cost pricing of mortgages appears to hold only in the long run. Floating mortgage rates and short-term fixed rates are closest to showing a full pass-through of changes in marginal costs.

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    File URL: http://www.rbnz.govt.nz/research_and_publications/analytical_notes/2012/an2012_10.pdf
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    Bibliographic Info

    Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Analytical Notes series with number AN2012/10.

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    Length: 14 p.
    Date of creation: Nov 2012
    Date of revision:
    Handle: RePEc:nzb:nzbans:2012/10

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    1. Banerjee, A. & Bystrov, V. & Mizen, P., 2012. "How do anticipated changes to short-term market rates influence banks' retail interest rates? Evidence from the four major euro area economies," Working papers 361, Banque de France.
    2. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    3. Iva Cecchin, 2011. "Mortgage Rate Pass-Through in Switzerland," Working Papers 2011-08, Swiss National Bank.
    4. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
    5. Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
    6. Leo Krippner, 2010. "Connecting the dots: a yield curve perspective on New Zealand’s interest rates," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 73, September.
    7. Saunders, Anthony & Schumacher, Liliana, 2000. "The determinants of bank interest rate margins: an international study," Journal of International Money and Finance, Elsevier, vol. 19(6), pages 813-832, December.
    8. Leo Krippner & Leif Anders Thorsrud, 2009. "Forecasting New Zealand's economic growth using yield curve information," Reserve Bank of New Zealand Discussion Paper Series DP2009/18, Reserve Bank of New Zealand.
    9. Gropp, Reint & Kok, Christoffer & Lichtenberger, Jung-Duk, 2007. "The dynamics of bank spreads and financial structure," Working Paper Series 0714, European Central Bank.
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