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Unconventional monetary policy and household debt: The role of cash-flow effects

Mario Pietrunti () and Federico Signoretti ()

Journal of Macroeconomics, 2020, vol. 64, issue C

Abstract: We study the transmission of conventional and unconventional monetary policy shocks via the loan market, distinguishing between adjustable- and fixed-rate mortgages (ARMs and FRMs, respectively) and focusing on the relative importance of the income channel. Under ARMs, a conventional monetary policy shock implies a temporary cash-flow effect leading to a redistribution between savers and borrowers, a feature that is weaker, but more persistent, under FRMs. Also, an easing via unconventional operations – modelled as a shift in households’ preferences that reduces the term premium on long-term loan rates – has an expansionary effect on output and inflation, although more muted than the one recorded via a conventional monetary policy shock. In the former case, we find a modest contribution of cash-flow effect to the dynamics of consumption.

Keywords: Mortgage market; Long-term mortgages; Quantitative easing; Cash-flow channel (search for similar items in EconPapers)
JEL-codes: E44 E52 G21 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Monetary policy in times of debt (2017) Downloads
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DOI: 10.1016/j.jmacro.2020.103201

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