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MoNK: Mortgages in a New-Keynesian Model

Author

Listed:
  • Carlos Carriga

    (Federal Reserve Bank of St. Louis)

  • Finn E. Kydland

    (University of California – Santa Barbara
    NBER)

  • Roman Sustek

    (Centre for Macroeconomics (CFM))

Abstract

We propose a tractable framework for monetary policy analysis in which both short - and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New-Keynesian vs. cash flow effects in their transmission; and what is the interaction between these two effects?

Suggested Citation

  • Carlos Carriga & Finn E. Kydland & Roman Sustek, 2019. "MoNK: Mortgages in a New-Keynesian Model," Discussion Papers 1920, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:1920
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    More about this item

    Keywords

    Mortgages; Cash-flow effects; Sticky prices; Monetary policy transmission; Monetary policy communication;
    All these keywords.

    JEL classification:

    • 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
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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