Mortgage Lending Rate Pass-Through & Asymmetry on the Swedish Retail Banking Market:

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The main objective of the Swedish central bank is to maintain price stability in the Swedish economy through the use of monetary policy. The success of the policy is decided by the transmission to society. An incomplete pass-through to retail banks’ lending rates is often regarded as an obstacle for efficient transmission of monetary policy operations. Further, asymmetries in the pass-through also impede the transmission, as the magnitude and timing of the effects on the economy will differ between expansionary and contractionary policies. The purpose of this thesis is therefore to 1) investigate the pass-through effect of changes in the money market rate to mortgage lending rates on the Swedish banking market, 2) search for evidence of asymmetries in the Swedish retail banks interest rate setting behaviour and 3) compare the pass-through effect and possible interest rate asymmetries between the included banks and maturities. The issues are examined applying a two-step error correction framework. We find that in the long run the pass-through effect is generally more than complete while being incomplete but high in the short run. We also find that the adjustments of mortgage...