UNE Business School Seminar Series

11am- 12pm, Monday 1 September

LT2, W40, Economics, Business and Law

GFC and Pricing Mark-Ups in the Australian Mortgage Market

Presented by

Professor Abbas Valadkhani, Swinburne University of Technology

Abstract

The aim of this study is to enhance transparency and competition in Australia’s mortgage market by examining the behaviour of the mortgage interest rate spread of 39 individual lenders. Using a time-varying probability regime-switching model and monthly data (2000M9–2012M3), we identify two very distinctive regimes: a low mark-up regime (R1) and a high mark-up regime (R2). Without setting any given date a priori, the results from both the regime-switching approach and a sequential search method indicate that the spread exhibits a significant upward shift around early 2008 for all lenders. The estimated switching model controls for the rising wholesale funding costs and changes in global consumer confidence over the sample period. The results show that building societies are generally less inclined to remain in R2 than most banks (particularly foreign subsidiary banks) and some credit unions, and are consequently more likely to offer competitive mortgages to borrowers.

Biography

Professor Valadkhani graduated from the University of Queensland in 1997 and held full-time permanent positions at the University of Newcastle, Queensland University of Technology (QUT), the University of Wollongong (UOW) and the University of New England (UNE). He joined the Swinburne Business School in March 2014. His recent research interests lie in Australian macroeconomic policy issues, asymmetric pricing behaviour of Australian bank and non-bank financial institutions in the retail lending market, and retail petrol pricing. He has published more than 75 articles in prestigious journals such as Applied Economics; Energy Economics; Energy Policy; Economics Letters; Economic Modelling; Economic Record; Journal of International Financial Markets, Institutions & Money; International Review of Economics and Finance; Journal of Industrial Relations; Journal of Policy Modeling; and Small Business Economics. For his relative academic standing among other research active peers in Australia please visit the following website: http://ideas.repec.org/top/top.australia.html