 Effects of monetary policy on household expectations: The role of homeownershipHie Joo Ahn, Shihan Xie and Choongryul Yang Journal of Monetary Economics, 2024, vol. 147, issue C Abstract: We study the role of homeownership in the effectiveness of monetary policy on households’ expectations based on individual-level microdata in the U.S. We find that homeowners lower their near-term inflation expectations and optimism about the labor market outlook in response to a rise in mortgage rates, while renters are less likely to do so. We further show that forward guidance shocks lead to similar differences between homeowners and renters. Our results suggest that homeowners pay attention to news on interest rates and adjust their expectations accordingly in a manner consistent with the intended effect of monetary policy. We characterize this empirical finding with a rational inattention model where mortgage payments create an incentive for homeowners to acquire information on monetary policy, unlike renters. This housing-driven endogenous attentiveness is the key mechanism behind the compelling empirical link among homeownership, attention, and the transmission of monetary policy. Keywords: Inflation expectations; Homeownership; Rational inattention; Monetary policy; Forward guidance (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000527 DOI: 10.1016/j.jmoneco.2024.103599 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
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