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- Title
Sticky Mortgage Rates during the Decade of 1994-2004: Stronger Empirical Evidence Using an Advanced Methodology.
- Authors
DONDETI, V. REDDY; MCGOWAN, CARL B.
- Abstract
During the last two decades, mortgage rate markets have adjusted quickly to the changes in other capital-market rates, especially the corporate bonds and the 10-year Treasury bond. The passage of the Depository Deregulation and Monetary Control Act (DDMCA) of 1980 is considered to be the primary force behind the integration of the mortgage market with other capital markets. However, mortgage rates are observed to be sticky in the sense that when other interest rates go up, mortgage rates also go up in tandem with the other rates, but when the other rates go down, mortgage rates do not decline as rapidly as the others. This paper studies the tracking relationships between mortgage rates and other capital market rates during the decade of 1994-2004 and presents stronger empirical evidence regarding the inertia, or "stickiness," of mortgage rates is presented. To accommodate the large number of observations with no change in mortgage rates, we conduct a regression that only uses observations that are up or down and find strong evidence of the sticky mortgage effect.
- Subjects
MORTGAGE rates; MORTGAGES; CORPORATE bonds; CAPITAL market; EMPIRICAL research; MARKETING
- Publication
Quarterly Journal of Finance & Accounting, 2014, Vol 52, Issue 1/2, p69
- ISSN
1939-8123
- Publication type
Article