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Business Cycle Implications of Mortgage Spreads

  • Walentin, Karl

    ()

    (Research Department, Central Bank of Sweden)

How do aggregate quantities at the business cycle frequency respond to shocks to the spread between residential mortgage rates and government bonds? Using a structural VAR approach, we find that mortgage spread shocks impact the real economy by both economically and statistically significant magnitudes: a 100 basis point decline in the spread causes a peak increase in consumption, residential investment and GDP by 1.6 percent, 6.2 percent and 1.9 percent, respectively. These effects are magnified when the policy rate is held fixed, as was the case in the US during the recent implementation of unconventional monetary policy.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp275_140423_updated.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 275.

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Length: 36 pages
Date of creation: 01 Sep 2013
Date of revision: 01 Mar 2014
Handle: RePEc:hhs:rbnkwp:0275
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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