Research Discussion Papers, Bank of Finland
No 10/2010:
Housing loan rate margins in Finland
Hanna Putkuri ()
Abstract: This paper examines how housing loan rates are determined,
using data on new housing loans in Finland. Finland is an example of a
bank-based euro area country where the majority of loans are granted at
variable rates. The paper extends the earlier interest rate pass-through
literature by taking explicitly into account the changing of lending rate
margins. A standard lending rate pass-through model, empirically specified
as an error-correction model, is extended with variables predicted by a
theoretical bank interest rate setting model. The results show that, since
the mid-1990s, short-run movements in housing loan rates can be largely
explained by changes in money market rates, and that long-run developments
have also been affected by less volatile cost and credit risk factors. The
roles of loan competition and capital regulation are also considered, but
these effects are more difficult to identify empirically.
Keywords: housing loan; lending rate; lending rate margin; error-correction model; (follow links to similar papers)
JEL-Codes: E43; G21; (follow links to similar papers)
39 pages, April 28, 2010
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