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Mortgages and Monetary Policy

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Author Info

  • Carlos Garriga

    ()
    (Federal Reserve Bank of St. Louis)

  • Finn E. Kydland

    ()
    (University of California-Santa Barbara (UCSB))

  • Roman Šustek

    ()
    (Queen Mary, School of Economics and Finance)

Abstract

Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be important. A general equilibrium model is developed to address this question. The transmission is found to be stronger under adjustable- than fixed-rate contracts. The source of impulse also matters: persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates.

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Bibliographic Info

Paper provided by Centre for Macroeconomics (CFM) in its series Discussion Papers with number 1306.

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Length: 58 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:cfm:wpaper:1306

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Web page: http://www.centreformacroeconomics.ac.uk/
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Related research

Keywords: Mortgages; debt servicing costs; monetary policy; transmission mechanism; housing investment;

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References

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Blog mentions

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  1. Mortgages and monetary policy
    by Christian Zimmermann in NEP-DGE blog on 2014-01-20 23:42:35

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