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Effects of Monetary Policy on Household Expectations: The Role of Homeownership

Hie Joo Ahn and Choongryul Yang
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Hie Joo Ahn: https://www.federalreserve.gov/econres/hie-joo-ahn.htm

No 2022-065, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We study the role of homeownership in the effectiveness of monetary policy on households' expectations. Empirically, we find that homeowners revise down their near-term inflation expectations and their optimism about future labor market conditions in response to a rise in mortgage rates, while renters are less likely to do so. We further show that the monetary-policy component of mortgage-rate changes creates the difference in expectation revisions between homeowners and renters. This result suggests that homeowners are attentive to news on interest rates and adjust their expectations accordingly in a manner consistent with the intended effect of monetary policy. We characterize these findings using a rational inattention model with two types of households---homeowners and renters.

Keywords: Inflation expectations; Homeownership; Rational inattention (search for similar items in EconPapers)
JEL-codes: D83 D84 E31 E52 (search for similar items in EconPapers)
Pages: 50 p.
Date: 2022-10-03
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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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2022-65

DOI: 10.17016/FEDS.2022.065

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