Why do prices rise faster than they fall? With an application to mortgage rates

Linda A. Toolsema and Jan Jacobs
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Linda A. Toolsema: University of Groningen, Groningen, The Netherlands, Postal: University of Groningen, Groningen, The Netherlands

Managerial and Decision Economics, 2007, vol. 28, issue 7, 701-712

Abstract: Empirical literature shows that prices respond asymmetrically to cost changes in many markets, rising faster than falling. An example is the mortgage rate, which follows an increase in capital market rates faster than a decrease. We examine various theoretical explanations for asymmetric price adjustments in general and discuss their validity for the mortgage rate. We show that in The Netherlands mortgage rates indeed respond asymmetrically to changes in capital market rates and consider the relevance of theoretical explanations for this particular market. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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Working Paper: Why do prices rise faster than they fall?: with an application to mortgage rates (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:28:y:2007:i:7:p:701-712

DOI: 10.1002/mde.1382

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