A study of the determinants of mortgage interest rates in Namibia through co-integration and error correction mechanisms.
Ogbokor, Cyril A.
Kwedhi, Ndapwa Tulina
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Discussions concerning interest rates, especially mortgage rates are increasingly being given a lot of attention in the literature. Indeed, in realisation of this fact, the study attempted to establish the factors that influence the behaviour of mortgage rates in Namibia, for the period 1994 to 2012. More specifically, it explored the extent to which perturbations in mortgage rates are explained by repo rate, real interest rate and risk premium. We invoked and subsequently applied co-integration and error correction mechanisms in order to investigate the issue under consideration. The result of the study suggested that approximately 68% of the systematic variation in Namibia’s mortgage rates’ swings could be attributed to changes in the three explanatory variables that were used in our econometric model. The bank rate in particular was observed to have a stronger influence on mortgage rates in Namibia. In addition, a long-run relationship was found between mortgage rates and bank rates. Therefore, the need for the Bank of Namibia to rely heavily on the use of the repo rate as a way of controlling, monitoring and influencing developments in the Namibian mortgage market cannot be overstressed.
- Economics