Mortgages and monetary policy

Carlos Garriga (), Finn E. Kydland and Roman Sustek

No 2013-37, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Mortgages are long-term nominal loans. Under incomplete asset markets, monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels, distinct from traditional transmission of monetary policy, are evaluated within a general equilibrium model. Persistent monetary policy shocks, resembling the level factor in the nominal yield curve, have larger effects than transitory shocks, manifesting themselves as long-short spread. The transmission is stronger under adjustable- than fixed-rate mortgages. Higher, persistent, inflation benefits homeowners under FRMs, but hurts them under ARMs.

Keywords: Mortgages; debt servicing costs; monetary policy; transmission mechanism; housing investment (search for similar items in EconPapers)
JEL-codes: E32 E52 G21 R21 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Mortgages and Monetary Policy (2017)
Working Paper: Mortgages and Monetary Policy (2016)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and monetary policy (2013)
Working Paper: Mortgages and Monetary Policy (2013)
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DOI: 10.20955/wp.2013.037

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