Multi-period fixed-rate loans, housing and monetary policy in small open economies

Jaromír Beneš and Kirdan Lees

No DP2010/03, Reserve Bank of New Zealand Discussion Paper Series from Reserve Bank of New Zealand

Abstract: We investigate the implications of the existence of multi-period fixed-rate loans for the behaviour of a small open economy exposed to finance shocks and housing boom-and-bust cycles. To this end, we propose a simple and analytically tractable method of incorporating multi-period debt into an otherwise standard consumer problem. Our simulations show that multi-period fixed-rate contracts can help insulate the economy from the adverse effects of particular shocks. This insulating mechanism is particularly effective for countries with high debt positions exposed to foreign exchange fluctuations, or countries operating a fixed exchange rate regime.

JEL-codes: E44 E5 E52 (search for similar items in EconPapers)
Pages: 29 p
Date: 2010-03
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-ure
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:nzb:nzbdps:2010/03

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