More on the monetary transmission mechanism: mortgage rates and the federal funds rate

James E. Payne

36 citations0/0 files storedJournal of Post Keynesian Economics

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Monetary Policy and Economic Impact Banking stability, regulation, efficiency Economic theories and models

Abstract

This study extends the research of Atesoglu (2003-4; 2004) with respect to the horizontalist and structuralist money supply endogeneity hypotheses to the case of fixed mortgage rates. The momentum threshold autoregressive model of Enders and Siklos (2001) reveals that the fixed mortgage rate and federal funds rate are cointegrated with incomplete interest rate pass-through and asymmetric adjustment. Specifically, the results of the asymmetric error correction model indicate unidirectional causality from the federal funds rate to the fixed mortgage rate, lending support for the horizontalist endogeneity hypothesis.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1979Distribution of the Estimators for Autoregressive Time Series with a Unit Root 1988Testing for a Unit Root in Time Series Regression 1981Credit Rationing in Markets with Imperfect Information 1992Testing the null hypothesis of stationarity against the alternative of a unit root 1995Likelihood-Based Inference in Cointegrated Vector Autoregressive Models 1997Further evidence on breaking trend functions in macroeconomic variables 2001Cointegration and Threshold Adjustment

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2007Interest rate pass through and asymmetries in adjustable rate mortgages 2016Linear and nonlinear Granger-causality between short-term and long-term interest rates during business cycles

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