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A Model of Building Society Interest Rate Setting

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  • Joanna Paisley

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.

Suggested Citation

  • Joanna Paisley, 1994. "A Model of Building Society Interest Rate Setting," Bank of England working papers 22, Bank of England.
  • Handle: RePEc:boe:boeewp:22
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1994/wp22.pdf
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    References listed on IDEAS

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    1. Paul Fisher & Juna Vega, 1993. "An Empirical Analysis of M4 in the United Kingdom," Bank of England working papers 21, Bank of England.
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    Cited by:

    1. 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, vol. 18(1), pages 17-38, March.
    2. repec:rbp:esteco:ree-33-01 is not listed on IDEAS
    3. Becker, Ralf & Osborn, Denise R. & Yildirim, Dilem, 2012. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Economic Modelling, Elsevier, pages 2504-2513.
    4. John K. Ashton & Andros Gregoriou, 2014. "The Influence of Banking Centralization on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy," Regional Studies, Taylor & Francis Journals, pages 1467-1482.
    5. Becker, Ralf & Osborn, Denise R. & Yildirim, Dilem, 2012. "A threshold cointegration analysis of interest rate pass-through to UK mortgage rates," Economic Modelling, Elsevier, pages 2504-2513.
    6. Berger, Allen N. & Kick, Thomas & Schaeck, Klaus, 2014. "Executive board composition and bank risk taking," Journal of Corporate Finance, Elsevier, pages 48-65.

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