A Model of Building Society Interest Rate Setting

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 01 June 1994

Working Paper No. 22
By Joanna Paisley

This paper examines the interest rate setting behaviour of societies since the breakdown of the interest rate cartel in 1984. Societies have faced increasing competition in the mortgage and savings market over this period, against a backdrop of radical regulatory change. The paper develops a profit maximising model of societies. The econometric analysis suggests that societies' interest rates are driven by market rates. However, the structural changes during the estimation period make it unlikely that the relationships found are stable. 

PDFA model of building society interest rate setting

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