The Development of the Relation Between the Swedish Repo Rate and the Three-month Mortgage Rate

Abstract

This paper examines whether the effect of the Swedish repo rate on the mortgage rate has changed during the period between the years of 2005-2017. The relation between the repo rate and mortgage rate is examined during three time intervals using regressions and correlation analysis. Furthermore, the effect of the repo rate is investigated in times of negative and positive interest rate levels. The results show that the effect of the repo rate on the mortgage rate has decreased significantly with time. It is also shown that the repo rate tends to affect the mortgage rate less in times of negative interest rates. The reduced effect of the repo rate has then been analysed using the Transmission Mechanism of Monetary Policy to deduct probable factors causing the change. The factors mentioned consist of changes in risk behaviour and mortgage financing.