IDEAS home Printed from https://ideas.repec.org/p/mar/magkse/201809.html
   My bibliography  Save this paper

Mortgage Debt and Time-Varying Monetary Policy Transmission

Author

Listed:
  • David Finck

    () (University of Giessen)

  • Joerg Schmidt

    () (University of Giessen)

  • Peter Tillmann

    () (University of Giessen)

Abstract

We study the role of monetary policy for the dynamics of U.S. mortgage debt, which is the largest component of household indebtedness. A time-varying parameter VAR model allows us to study the variation in the mortgage debt sensitivity to monetary policy. We find that an identically-sized policy shock became less effective over time. We use a DSGE model to show that a fall in the share of adjustable-rate mortgages (ARMs) could replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a drop in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed towards reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself. The results are consistent with the "mortgage rate conundrum" found by Justiniano et al. (2017) and have strong implications for policy.

Suggested Citation

  • David Finck & Joerg Schmidt & Peter Tillmann, 2018. "Mortgage Debt and Time-Varying Monetary Policy Transmission," MAGKS Papers on Economics 201809, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201809
    as

    Download full text from publisher

    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2018/09-2018_finck.pdf
    File Function: First 201809
    Download Restriction: no

    References listed on IDEAS

    as
    1. Carlos Garriga & Finn E. Kydland & Roman Sustek, 2013. "Mortgages and Monetary Policy," NBER Working Papers 19744, National Bureau of Economic Research, Inc.
    2. Alpanda, Sami & Zubairy, Sarah, 2017. "Addressing household indebtedness: Monetary, fiscal or macroprudential policy?," European Economic Review, Elsevier, vol. 92(C), pages 47-73.
    3. Canova, Fabio & Gambetti, Luca, 2009. "Structural changes in the US economy: Is there a role for monetary policy?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(2), pages 477-490, February.
    4. Òscar Jordà & Moritz Schularick & Alan M. Taylor, 2016. "The great mortgaging: housing finance, crises and business cycles," Economic Policy, CEPR;CES;MSH, vol. 31(85), pages 107-152.
    5. Paul, Pascal, 2017. "The Time-Varying Effect of Monetary Policy on Asset Prices," Working Paper Series 2017-9, Federal Reserve Bank of San Francisco, revised 02 Jan 2018.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    mortgage debt; monetary policy; deleveraging; time-varying VAR; DSGE;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G2 - Financial Economics - - Financial Institutions and Services

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mar:magkse:201809. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bernd Hayo). General contact details of provider: http://edirc.repec.org/data/vamarde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.