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Monetary Policy Transmission with Adjustable and Fixed-Rate Mortgages: The Role of Credit Supply

Author

Listed:
  • Fatih Altunok

    (Central Bank of the Republic of Turkey)

  • Yavuz Arslan

    (University of Liverpool Management School)

  • Steven Ongena

    (University of Zurich)

Abstract

While higher interest rates increase the payments for borrowers with adjustable-rate mortgages (ARMs), cutting their disposable income, higher rates also increase lenders' interest income strengthening their balance sheets. We find, correspondingly, that-when monetary conditions tighten-banks with higher ARM shares see their stock prices increase, supply more credit, and obtain higher interest income compared to banks with lower ARM shares. Therefore, more ARM credit outstanding may weaken monetary policy transmission. And during a financial crisis, when interest income becomes critical for banks, reductions in interest rates may be challenging for those banks with very high ARM shares.

Suggested Citation

  • Fatih Altunok & Yavuz Arslan & Steven Ongena, 2024. "Monetary Policy Transmission with Adjustable and Fixed-Rate Mortgages: The Role of Credit Supply," Swiss Finance Institute Research Paper Series 24-65, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2465
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    Cited by:

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    2. KÄ rlis Vilerts & Sofia Anyfantaki & KonstantÄ«ns Beņkovskis & Sebastian Bredl & Massimo Giovannini & Florian Matthias Horky & Vanessa Kunzmann & Tibor Lalinský & Athanasios Lampousis & Elizaveta Lu, 2025. "Details matter: loan pricing and transmission of monetary policy in the euro area," Working Papers 345, Bank of Greece.
    3. Ivanova, Nadezhda & Popova, Svetlana & Styrin, Konstantin, 2025. "Bank market power and monetary policy transmission: Evidence from loan-level data," Emerging Markets Review, Elsevier, vol. 66(C).

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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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