International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis
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This study examines the transmission of the cost-of-funds rates, domestically and internationally, to owner-occupied housing interest rates at the bank level for the period 2002(7)–2015(12) in Australia. Three main issues, cross-sectional dependence, parameter heterogeneity, and asymmetry, have been considered using the linear and nonlinear common-factor Augmented Mean Group estimators. Significant unobservable coefficients in all estimates ascertain that unobserved common factors arising from both national and global shocks have a significant influence on mortgage rate transmission. The results of sizable heterogeneity and asymmetry, found in all estimates while controlling for cross-sectional correlations, highlight the substantial effect of the foreign-funds rate on long-run mortgage price setting. We find a closer connection between mortgage interest rates and international funding cost; we have also confirmed a declining transmission of the policy rate after the 2008 global financial crisis.
© 2018 Springer Berlin Heidelberg. This is an electronic version of an article published in Empirical Economics, 2018. Empirical Economics is available online at: http://link.springer.com/ with the open https://link.springer.com/article/10.1007%2Fs00181-018-1488-6 of your article.
Economics not elsewhere classified
Interest rate pass-through