Monetary Policy Transmission with Adjustable and Fixed-Rate Mortgages: The Role of Credit Supply

Fatih Altunok, Yavuz Arslan and Steven Ongena
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Fatih Altunok: Central Bank of the Republic of Turkey
Yavuz Arslan: University of Liverpool Management School

No 24-65, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: While higher interest rates increase the payments for borrowers with adjustable-rate mortgages (ARMs), cutting their disposable income, higher rates also increase lenders' interest income strengthening their balance sheets. We find, correspondingly, that-when monetary conditions tighten-banks with higher ARM shares see their stock prices increase, supply more credit, and obtain higher interest income compared to banks with lower ARM shares. Therefore, more ARM credit outstanding may weaken monetary policy transmission. And during a financial crisis, when interest income becomes critical for banks, reductions in interest rates may be challenging for those banks with very high ARM shares.

Keywords: Monetary policy; Adjustable rate mortgages; Fixed-rate mortgages (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2024-11
New Economics Papers: this item is included in nep-mon
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Related works:
Working Paper: Monetary Policy Transmission with Adjustable and Fixed Rate Mortgages: The Role of Credit Supply (2023)
Working Paper: Monetary Policy Transmission with Adjustable and Fixed Rate Mortgages: The Role of Credit Supply (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2465

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