Mortgages and Monetary Policy

Carlos Garriga (), Finn E. Kydland and Roman Šustek

The Review of Financial Studies, 2017, vol. 30, issue 10, 3337-3375

Abstract: Mortgages are long-term loans with nominal payments. Consequently, in incomplete asset markets, monetary policy can affect housing investment and the economy through the cost of new mortgage borrowing and real payments on outstanding debt. These channels, distinct from the traditional real rate channel, are embedded in a general equilibrium model. The transmission mechanism is stronger under adjustable-rate mortgages compared with fixed-rate mortgages. Further, persistent monetary policy shocks affecting the level of the nominal yield curve have larger real effects compared with transitory shocks. Persistently higher inflation gradually benefits homeowners under FRMs, but hurts them immediately under ARMs. Received October 26, 2015; editorial decision December 31, 2016 by Editor Itay Goldstein.

JEL-codes: E32 E52 G21 R21 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Mortgages and Monetary Policy (2016)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and Monetary Policy (2015)
Working Paper: Mortgages and monetary policy (2013)
Working Paper: Mortgages and monetary policy (2013)
Working Paper: Mortgages and Monetary Policy (2013)
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