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Refinancing and The Transmission of Monetary Policy to Consumption

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  • Arlene Wong

    (Princeton University)

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.

Suggested Citation

  • Arlene Wong, 2021. "Refinancing and The Transmission of Monetary Policy to Consumption," Working Papers 2021-57, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2021-57
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    Cited by:

    1. S. Boragan Aruoba & Ronel Elul & Sebnem Kalemli Ozcan, 2022. "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," Working Papers 22-34, Federal Reserve Bank of Philadelphia.
    2. Knut Are Aastveit & Bruno Albuquerque & André K. Anundsen, 2023. "Changing Supply Elasticities and Regional Housing Booms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1749-1783, October.
    3. Denis Gorea & Oleksiy Kryvtsov & Marianna Kudlyak, 2022. "House Price Responses to Monetary Policy Surprises: Evidence from the U.S. Listings Data," Staff Working Papers 22-39, Bank of Canada.
    4. Dong Beom Choi & Hyun‐Soo Choi & Jung‐Eun Kim, 2022. "Clogged Intermediation: Were Home Buyers Crowded Out?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(4), pages 1065-1098, June.
    5. Hie Joo Ahn & Choongryul Yang, 2022. "Effects of Monetary Policy on Household Expectations: The Role of Homeownership," Finance and Economics Discussion Series 2022-065, Board of Governors of the Federal Reserve System (U.S.).
    6. Bruno Albuquerque & Martin Iseringhausen & Frederic Opitz, 2024. "The Housing Supply Channel of Monetary Policy," IMF Working Papers 2024/023, International Monetary Fund.
    7. Juan Carlos Parra‐Alvarez & Olaf Posch & Mu‐Chun Wang, 2023. "Estimation of Heterogeneous Agent Models: A Likelihood Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(2), pages 304-330, April.
    8. Myroslav Pidkuyko, 2023. "Heterogeneous Spillovers of Housing Credit Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 39-59, December.
    9. Orazio Attanasio & Kieran Larkin & Morten O. Ravn & Mario Padula, 2022. "(S)Cars and the Great Recession," Econometrica, Econometric Society, vol. 90(5), pages 2319-2356, September.
    10. Matusche, Alexander & Wacks, Johannes, 2023. "Does wealth inequality affect the transmission of monetary policy?," Journal of Macroeconomics, Elsevier, vol. 75(C).
    11. Myroslav Pidkuyko, 2023. "Heterogeneous Spillovers of Housing Credit Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 39-59, December.

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    More about this item

    Keywords

    Consumption; monetary policy; refinancing; heterogeneous responses; age;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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