Interest Rate Pass‐Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate

10 Pages Posted: 14 Sep 2012

See all articles by Abbas Valadkhani

Abbas Valadkhani

University of Wollongong - School of Economics and Information Systems

Sajid Anwar

University of South Australia - International Graduate School of Management

Date Written: September 2012

Abstract

There is an ongoing controversy over whether banks’ mortgage rates rise more rapidly than they fall due to their asymmetric responses to changes in the cash rate. This paper examines the dynamic interplay between the cash rate and the standard‐variable mortgage rate using monthly data in the post‐1989 era. Unlike previous Australian studies, our proposed threshold and asymmetric error‐correction models account for both the amount and adjustment asymmetries. We found that the Reserve Bank of Australia’s rate rises have a much larger and more instantaneous impact on the mortgage rate than rate cuts.

JEL Classification: C24, C58, E43, E58

Suggested Citation

Valadkhani, Abbas and Anwar, Sajid, Interest Rate Pass‐Through and the Asymmetric Relationship between the Cash Rate and the Mortgage Rate (September 2012). Economic Record, Vol. 88, Issue 282, pp. 341-350, 2012. Available at SSRN: https://ssrn.com/abstract=2146449 or http://dx.doi.org/10.1111/j.1475-4932.2012.00823.x

Abbas Valadkhani (Contact Author)

University of Wollongong - School of Economics and Information Systems ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Sajid Anwar

University of South Australia - International Graduate School of Management ( email )

GPO Box 2471
Adelaide South Australia 5001
Australia

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