Monetary Policy Wedges and the Long-term Liabilities of Households and Firms

Jules van Binsbergen and Marco Grotteria

No 32137, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the transmission of monetary policy shocks to the long-duration liabilities of households and firms using high-frequency variation in 10-year swap rates around FOMC announcements. We find that four weeks after the announcement mortgage rates move one-for-one with 10-year swap rates, leaving little explanatory power for mortgage concentration, bank market power, or credit risk. Variation in credit risk does materially affect monetary policy transmission to corporate bonds. Expected future short rates and term premia play a significant role in driving both mortgage rates and corporate bond yields, which explains the Federal Reserve’s increased focus on these quantities.

JEL-codes: E40 E43 E44 E5 E50 E52 E58 G21 G51 (search for similar items in EconPapers)
Date: 2024-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ifn, nep-mac and nep-mon
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Working Paper: Monetary Policy Wedges and the Long-term Liabilities of Households and Firms (2024)
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