Bootstrap Unit Root Tests for Nonlinear Threshold Models

Date

2010-05-17

Author

Yıldırım Kasap, Dilem
Becker, Ralf
Osborn, Denise R.

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This paper empirically analyses the interest rate transmission mechanism in the United Kingdom by exploring first the pass-through of the official rate to the money market rate and then that of the market rate to the mortgage rate. The focus is on the possibility of asymmetric adjustment in the pass-through process arising from financial market conditions and monetary policies. Empirical results indicate substantial asymmetries in both steps of the process on the basis of a nonlinear threshold error-correction model, which is motivated entirely by non-standard bootstrap-based tests that take into account the discrete nature of changes in the official rate. Despite the complete pass-through in the long-run, it appears that responses of the money market rate to changes in the official rate are driven by the previous period’s market rate change. On the other hand, market rate changes are not completely reflected in the mortgage rate in the long-run, with short-term mortgage rate responses depending on whether changes in the market rate are motivated by official rate changes. Furthermore, generalized impulse response function analysis uncovers that adjustments differ with regard to the sign and magnitude of interest rate changes in a consistent way with the interbank and mortgage market conditions of the study period.

URI

https://hdl.handle.net/11511/100780

Conference Name

Royal Economic Society 2010 Conference

Collections

Department of Economics, Conference / Seminar

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Citation Formats

D. Yıldırım Kasap, R. Becker, and D. R. Osborn, “Bootstrap Unit Root Tests for Nonlinear Threshold Models,” presented at the Royal Economic Society 2010 Conference, London, İngiltere, 2010, Accessed: 00, 2022. [Online]. Available: https://hdl.handle.net/11511/100780.