Conventional Mortgage Interest Rate and The Effective Federal Funds Rate Pass-Through

This paper examines the response of the conventional thirty-year mortgageinterest rate to changes in the effective federal funds rate. The results indicatecomplete pass-through; in the long run, the conventional mortgage interest rateresponds in a one-to-one manner with the effective federal funds rate. Further,results suggest the conventional mortgage interest rate responds symmetrically tochanges in the effective federal funds rate in the long run. In the short run, large,frequent increases in the effective federal funds rate create larger increases in themortgage interest rate relative to periods where the federal funds rate is rising slowlyor falling. Our results suggest a long-run mortgage interest rate adjustment half-lifeof approximately twenty months in response to an effective federal funds ratechange.