Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

David Berger, Konstantin Milbradt, Fabrice Tourre and Joseph Vavra

No 25157, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loan-level evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.

JEL-codes: E0 E2 E4 E43 E5 E52 E58 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-mac, nep-mon and nep-ure
Note: EFG ME PE
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Citations: View citations in EconPapers (15)

Published as David Berger & Konstantin Milbradt & Fabrice Tourre & Joseph Vavra, 2021. "Mortgage Prepayment and Path-Dependent Effects of Monetary Policy," American Economic Review, American Economic Association, vol. 111(9), pages 2829-2878, September.

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Journal Article: Mortgage Prepayment and Path-Dependent Effects of Monetary Policy (2021)
Working Paper: Mortgage Prepayment and Path-Dependent Effects of Monetary Policy (2019)
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