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Unconventional monetary policy and household debt: The role of cash-flow effects

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  • Pietrunti, Mario
  • Signoretti, Federico M.

Abstract

We study the transmission of conventional and unconventional monetary policy shocks via the loan market, distinguishing between adjustable- and fixed-rate mortgages (ARMs and FRMs, respectively) and focusing on the relative importance of the income channel. Under ARMs, a conventional monetary policy shock implies a temporary cash-flow effect leading to a redistribution between savers and borrowers, a feature that is weaker, but more persistent, under FRMs. Also, an easing via unconventional operations – modelled as a shift in households’ preferences that reduces the term premium on long-term loan rates – has an expansionary effect on output and inflation, although more muted than the one recorded via a conventional monetary policy shock. In the former case, we find a modest contribution of cash-flow effect to the dynamics of consumption.

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  • Pietrunti, Mario & Signoretti, Federico M., 2020. "Unconventional monetary policy and household debt: The role of cash-flow effects," Journal of Macroeconomics, Elsevier, vol. 64(C).
  • Handle: RePEc:eee:jmacro:v:64:y:2020:i:c:s016407041930254x
    DOI: 10.1016/j.jmacro.2020.103201
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    3. Yakov Ben-Haim & Jan Willem van den End, 2019. "Fundamental uncertainty about the natural rate of interest: Info-gap as guide for monetary policy," DNB Working Papers 650, Netherlands Central Bank, Research Department.

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    More about this item

    Keywords

    Mortgage market; Long-term mortgages; Quantitative easing; Cash-flow channel;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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