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Empirical Economics

Erschienen in:

18.06.2018

International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis

verfasst von: Quynh Chau Pham Holland, Benjamin Liu, Eduardo Roca

Erschienen in: Empirical Economics | Ausgabe 4/2019

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Abstract

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.

Vorheriger Artikel National culture effects on stock market volatility level

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This transmission breakdown has emerged in Euro core advanced economies (Aristei and Gallo 2014; Hristov et al. 2014), and in Australia (Lim et al. 2013).

The main advantages of the AMG model are discussed in Sect. 4.4 because of the space limitation of Introduction.

Owner-occupied loans indicate the value of housing loans to Australian households for the construction or purchase of dwellings for owner occupation; revolving credit or redraw facilities are originally approved for the purpose of predominantly owner-occupied housing (APRA 2017).

The 3-month BBSW, which represents the midpoint of the nationally observed best bid and best offer for AFMA Prime Bank Eligible Securities, including bank accepted bills and negotiable certificates of deposit, is used to provide reference interest rates for the pricing and revaluation of Australian dollar derivatives and debt securities.

This model is based on the markup pricing contribution of Rousseas (1985).

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Titel: International funding cost and heterogeneous mortgage interest-rate pass-through: a bank-level analysis
verfasst von: Quynh Chau Pham Holland
Benjamin Liu
Eduardo Roca
Publikationsdatum: 18.06.2018
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 4/2019
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1488-6

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