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Interest Rate Pass‐Through and Monetary Transmission: Evidence from Individual Financial Institutions' Retail Rates
Author(s) -
Hofmann Boris,
Mizen Paul
Publication year - 2004
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.0013-0427.2004.00359.x
Subject(s) - interest rate , monetary economics , economics , business , econometric analysis , financial system , econometrics
Official interest rate changes should influence short rates on money market instruments and retail products, such as deposit accounts and mortgages, but complete pass‐through is often taken for granted. This paper provides a theoretical and econometric framework for assessing the evidence for this assumption using seventeen years of monthly data for rates on thirteen deposit and mortgage products offered by individual UK financial institutions. The methodology allows for asymmetries and non‐linearities in adjustment and the results show that the speed of adjustment in retail rates depends on whether the perceived ‘gap’ between retail and base rates is widening or narrowing.