Refinancing and The Transmission of Monetary Policy to Consumption

Arlene Wong

Working Papers from Princeton University. Economics Department.

Abstract: This paper examines the role of the refinancing channel and the mortgage market structure for the transmission of monetary policy to consumption. First, I document heterogeneous consumption responses to monetary policy shocks. I find a large consumption response for homeowners who refinance or enter new loans, which is concentrated among younger people. Second, I develop a life-cycle model with fixed rate mortgages that explains these facts. Moving from a fixed to a variable rate mortgage structure reduces the heterogeneous effects of monetary policy on consumption by age. At the same time, the aggregate effects of monetary policy on consumption are increased substantially.

Keywords: Consumption; monetary policy; refinancing; heterogeneous responses; age (search for similar items in EconPapers)
JEL-codes: E21 E52 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2021-57

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