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Modelling Australia's Retail Mortgage Rate

Abbas Valadkhani and Sajid Anwar ()
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Sajid Anwar: The University of the Sunshine Coast

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: There is an ongoing controversy over whether banks’ mortgage rates rise more readily 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 variable mortgage rate using monthly data in the post-1989 era. Unlike previous studies for Australia, our proposed threshold and asymmetric error-correction models account for both the amount and adjustment asymmetries. We found thatrate rises have much larger and more instantaneous impact on the mortgage rate than rate cuts, suggesting an urgent need for monitoring the banks’ lending behaviour in Australia.

Keywords: Banks’ mortgage rates; Asymmetric and threshold error-correction models; Australia (search for similar items in EconPapers)
JEL-codes: C24 C58 E43 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:uow:depec1:wp12-01

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