Housing Debt and the Transmission of Monetary Policy

Paolo Surico, Clodomiro Ferreira Mayorga () and James Cloyne
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Paolo Surico: London Business School

No 629, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: In response to an unanticipated change in interest rates, households with mortgage debt adjust markedly their expenditure, especially on durable goods, renters react to a lesser extent and outright home-owners do not react at all. All housing tenure groups experience a significant change in disposable income (over and above the direct impact on mortgage repayments). The response of house prices is sizable, driving a significant adjustment in loan-to-income ratios but little change in loan-to-value ratios. A simple collateral constraint model augmented with durable goods and renters generates predictions consistent with these novel empirical findings and suggests that heterogeneity in housing debt positions plays an important role in the transmission of monetary policy.

Date: 2015
New Economics Papers: this item is included in nep-cba, nep-mon and nep-ure
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed015:629

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