Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

David Berger, Fabrice Tourre, Joseph Vavra and Konstantin Milbradt
Additional contact information
Fabrice Tourre: Copenhagen Business School
Konstantin Milbradt: Northwestern University

No 175, 2019 Meeting Papers from Society for Economic Dynamics

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.

Date: 2019
New Economics Papers: this item is included in nep-cba, nep-mon and nep-ure
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Mortgage Prepayment and Path-Dependent Effects of Monetary Policy (2021)
Working Paper: Mortgage Prepayment and Path-Dependent Effects of Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:175

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