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Effects of monetary policy on household expectations: The role of homeownership

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  • Ahn, Hie Joo
  • Xie, Shihan
  • Yang, Choongryul

Abstract

We study the role of homeownership in the effectiveness of monetary policy on households’ expectations based on individual-level microdata in the U.S. We find that homeowners lower their near-term inflation expectations and optimism about the labor market outlook in response to a rise in mortgage rates, while renters are less likely to do so. We further show that forward guidance shocks lead to similar differences between homeowners and renters. Our results suggest that homeowners pay attention to news on interest rates and adjust their expectations accordingly in a manner consistent with the intended effect of monetary policy. We characterize this empirical finding with a rational inattention model where mortgage payments create an incentive for homeowners to acquire information on monetary policy, unlike renters. This housing-driven endogenous attentiveness is the key mechanism behind the compelling empirical link among homeownership, attention, and the transmission of monetary policy.

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  • Ahn, Hie Joo & Xie, Shihan & Yang, Choongryul, 2024. "Effects of monetary policy on household expectations: The role of homeownership," Journal of Monetary Economics, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:moneco:v:147:y:2024:i:c:s0304393224000527
    DOI: 10.1016/j.jmoneco.2024.103599
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    Cited by:

    1. Hie Joo Ahn & Shihan Xie, 2024. "Stock-driven Household Attention," Papers 2407.16141, arXiv.org.
    2. Tufan Ekici & Martin Geiger & Marios Zachariadis, 2024. "Understanding Expectations Formation for Hand-to-Mouth Households: Lessons from the Financial Crisis," University of Cyprus Working Papers in Economics 05-2024, University of Cyprus Department of Economics, revised 05 Nov 2024.
    3. Jessica Piccolo & Yuriy Gorodnichenko, 2025. "Homeownership and Attention to Inflation: Evidence from Information Treatments," NBER Working Papers 33595, National Bureau of Economic Research, Inc.
    4. Dietrich, Alexander M., 2024. "Consumption categories, household attention, and inflation expectations: Implications for optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 147(C).

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    More about this item

    Keywords

    Inflation expectations; Homeownership; Rational inattention; Monetary policy; Forward guidance;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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