Conventional Mortgage Interest Rate and The Effective Federal Funds Rate Pass-Through
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Keywords

Thirty-year Conventional Mortgage Interest Rate
Effective Federal Funds Rate
Asymmetric Adjustment
Pass-Through

How to Cite

Tuttle, M., & Hegwood, N. (2017). Conventional Mortgage Interest Rate and The Effective Federal Funds Rate Pass-Through. Journal of Business Strategies, 34(1), 57–74. https://doi.org/10.54155/jbs.34.1.57-74

Abstract

This paper examines the response of the conventional thirty-year mortgage
interest rate to changes in the effective federal funds rate. The results indicate
complete pass-through; in the long run, the conventional mortgage interest rate
responds in a one-to-one manner with the effective federal funds rate. Further,
results suggest the conventional mortgage interest rate responds symmetrically to
changes in the effective federal funds rate in the long run. In the short run, large,
frequent increases in the effective federal funds rate create larger increases in the
mortgage interest rate relative to periods where the federal funds rate is rising slowly
or falling. Our results suggest a long-run mortgage interest rate adjustment half-life
of approximately twenty months in response to an effective federal funds rate
change.

https://doi.org/10.54155/jbs.34.1.57-74
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