Mortgages and Monetary Policy

Carlos Garriga (), Finn Kydland and Roman Sustek

No 2015-33, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Mortgages are long-term loans with nominal payments. Consequently, under 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 traditional real rate channels, are embedded in a general equilibrium model. The transmission mechanism is found to be stronger under adjustable- than fixed-rate mortgages. Further, monetary policy shocks affecting the level of the nominal yield curve have larger real effects than transitory shocks, affecting its slope. Persistently higher inflation gradually benefits homeowners under FRMs, but hurts them immediately under ARMs.

Keywords: Mortgage finance; monetary policy; general equilibrium; housing investment; redistribution (search for similar items in EconPapers)
JEL-codes: E32 E52 G21 R21 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2015-10-25
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 (4)

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Related works:
Journal Article: Mortgages and Monetary Policy (2017)
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 (2013)
Working Paper: Mortgages and monetary policy (2013)
Working Paper: Mortgages and Monetary Policy (2013)
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