A threshold cointegration analysis of interest rate pass-through to UK mortgage rates

Download

2.pdf

Date

2012-11-01

Author

Becker, Ralf
Osborn, Denise R.
Yıldırım Kasap, Dilem

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

160
views

110
downloads

This paper empirically analyses the interest rate transmission mechanism in the United Kingdom by exploring the pass-through of the official rate to the money market rate and of the market rate to the mortgage rate. Potential asymmetries, due to financial market conditions and monetary policy, lead to the use of a nonlinear threshold error-correction model, with hypothesis tests based on nonstandard bootstrap procedures that take into account the discrete nature of changes in the official rate. The empirical results indicate the presence of substantial asymmetries in both steps of the process, with these asymmetries depending on past changes in the money market rate and whether these are motivated by official rate changes. Generalized impulse response function analysis shows that adjustments differ with regard to the sign and magnitude of interest rate changes in a way that is consistent with conditions in the interbank and mortgage markets over the recent period.

Subject Keywords

Interest rate transmission, Mortgage rates, Nonlinear cointegration

URI

https://hdl.handle.net/11511/36269

Journal

ECONOMIC MODELLING

DOI

https://doi.org/10.1016/j.econmod.2012.08.004

Collections

Department of Economics, Article

Suggestions

OpenMETU
Core

A Comparative study for nonlinear structure of the interest rate pass through Değer, Osman; Yıldırım Kasap, Dilem; Department of Economics (2012) This study investigates the interest rate pass through from the money market rate to the lending rate by utilizing monthly data of fifteen countries, grouped as high income, upper middle income and lower middle income, over the period 1999:01-2011:09. Taking the linear cointegration test of Engle-Granger as benchmark, we employ threshold cointegration tests of Enders and Siklos (2001) in order to account for the possible nonlinearities in the pass-through process. Empirical results reveal that the pass thro...
Non-linear structure of the Turkish interest rate transmission mechanism Bozok, İhsan; Yıldırım Kasap, Dilem; Department of Economics (2012) This paper empirically analyses the interest rate transmission mechanism from money market rate to lending rate by utilizing the bank-level data in the distinction of cash, automobile, housing and corporate loans in Turkey. The main objective is to reveal the possible asymmetries of the adjustment process as well as the extent of the pass through. Empirical results indicate that mark-up value is the minimum for corporate rates on average, followed by housing, automobile and cash rates, respectively. Additio...
Interest Rate Pass-Through to Turkish Lending Rates: A Threshold Cointegration Analysis Yıldırım Kasap, Dilem (Economic Research Center Middle East Technical University, 2012-09-01) This paper aims to investigate the actual nature of the interest rate pass-through to Turkish cash, automobile, housing and corporate loan rates. Focusing on the possibility of nonlinearity in the adjustment of lending rates due to financial market conditions and monetary policies, we adopt the threshold autoregressive (TAR) and momentum threshold autoregressive (MTAR) models of Enders and Siklos (2001). Empirical results suggest substantial asymmetries (nonlinearities) in all lending rates. More specifical...
Bootstrap Unit Root Tests for Nonlinear Threshold Models Yıldırım Kasap, Dilem; Becker, Ralf; Osborn, Denise R. (2010-05-17) This paper empirically analyses the interest rate transmission mechanism in the United Kingdom by exploring first the pass-through of the official rate to the money market rate and then that of the market rate to the mortgage rate. The focus is on the possibility of asymmetric adjustment in the pass-through process arising from financial market conditions and monetary policies. Empirical results indicate substantial asymmetries in both steps of the process on the basis of a nonlinear threshold error-...
Term structure of government bond yields : a macro-finance approach Artam, Halil; Yıldırak, Şahap Kasırga; Department of Financial Mathematics (2006) Interactions between macroeconomic fundamentals and term structure of interest rates be stronger according to the way of changes in structure of worldwide economy. Combined macro-finance analysis determines the joint dynamics of term structure of interest rates and macroeconomic fundamentals. This thesis provides analysis of two existing macro-finance models and an original one. Parameter estimations for these three macro-finance term structure models are done for monthly Turkish data by use of an efficient...

Citation Formats

R. Becker, D. R. Osborn, and D. Yıldırım Kasap, “A threshold cointegration analysis of interest rate pass-through to UK mortgage rates,” ECONOMIC MODELLING, pp. 2504–2513, 2012, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/36269.