Impact of key interest rate changes on mortgage rates in Russian regions

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Abstract

The article considers the interest rate channel of the monetary policy transmission of the Bank of Russia to the weighted average mortgage rate published on the website of the Bank of Russia and the “commercial” mortgage rate calculated by us less mortgage programmes: preferential, family, Far East, Arctic and mortgage programme for IT specialists. The main hypothesis tested in the article was the reaction of mortgage rates to changes in monetary policy of the Bank of Russia; it varied by Russian regions and by time intervals. To test this hypothesis, we used an error correction model (ECM), estimated on monthly data for 85 Russian regions from January 2016 to August 2023. The results showed that before COVID-19 (January 2016 — February 2020), a long-term relationship of mortgage rates with Moscow Interbank Actual Credit Rate (MIACR) and adjustment to long-term equilibrium were found in most regions (76 regions for weighted average and 61 regions for commercial rates). COVID-19 impacted the transmission of both weighted average rates and commercial rates approximately equally, in the period January 2016 — February 2022 it remained in 4 and 14 Russian regions, respectively. The special military operation (SMO) shock (estimated on the data up to August 2023) stronger influenced the transmission of weighted average rates than commercial rates (it remained in 5 and 30 regions, respectively). Monetary transmission is a set of channels for transmitting impulses of changes in the key rate of the central bank to the volume of liquidity and economic activity of agents. Impact of monetary policy on mortgage rates varied by regions: before COVID-19 — in the European part of Russia, weighted average mortgage rates reacted to the change in MIACR mainly in the month after the shock and in Siberia and the Far East — in the next month, which may be caused by multiple intermediaries.

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About the authors

О. А. Demidova

National Research University “Higher School of Economics”

Author for correspondence.
Email: demidova@hse.ru
Russian Federation, Moscow

А. А. Shchankina

National Research University “Higher School of Economics”

Email: annachankina@yandex.ru
Russian Federation, Moscow

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2. Fig. 1. Share of soft loans in August 2023. Note. Author's calculations based on DOM.RF data.

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3. Fig. 2. Estimates of the coefficient characterizing the long-run equilibrium (γ) of the weighted average mortgage rate (left) and the commercial mortgage rate (right) for the period before COVID-19 (January 2016-February 2020)

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4. Fig. 3. Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period before COVID-19 (January 2016 through February 2020) ( )

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5. Fig. 4. Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period before COVID-19 (January 2016 through February 2020) ( )

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6. Fig. 5. Estimates of the coefficient characterizing the long-run equilibrium (γ) of the weighted average mortgage rate (left) and the commercial mortgage rate (right) over the period to COVID (January 2016-February 2022)

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7. Fig. 6. Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period before the SWO (January 2016 through February 2022) ( )

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8. Fig. 7. Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period before the SWO (January 2016 through February 2022) ( )

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9. Fig. 8. Estimates of the coefficient characterizing the long-run equilibrium (γ) of the weighted average mortgage rate (left) and the commercial mortgage rate (right) (January 2016 through August 2023)

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10. Fig. 9. Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period January 2016. - August 2023 ( )

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11. Fig. 10: Coefficient estimates of the short-run effect of MIACR changes on the weighted average mortgage rate (left) and commercial mortgage rate (right) for the period January 2016. - August 2023 ( )

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