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Regional Heterogeneity and Monetary Policy

Author

Listed:
  • Martin Beraja
  • Andreas Fuster
  • Erik Hurst
  • Joseph Vavra

Abstract

We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but that these effects vary over time with changes in the regional distribution of house price growth. We then build a heterogeneous household model of refinancing with both mortgage borrowers and lenders and use it to explore the aggregate implications for monetary policy arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time.

Suggested Citation

  • Martin Beraja & Andreas Fuster & Erik Hurst & Joseph Vavra, 2017. "Regional Heterogeneity and Monetary Policy," NBER Working Papers 23270, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23270
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    References listed on IDEAS

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    1. Sumit Agarwal & Gene Amromin & Itzhak Ben-David & Souphala Chomsisengphet & Tomasz Piskorski & Amit Seru, 2017. "Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program," Journal of Political Economy, University of Chicago Press, vol. 125(3), pages 654-712.
    2. Martin Beraja & Erik Hurst & Juan Ospina, 2016. "The Aggregate Implications of Regional Business Cycles," NBER Working Papers 21956, National Bureau of Economic Research, Inc.
    3. Carlos Garriga & Finn E. Kydland & Roman Sustek, 2013. "Mortgages and Monetary Policy," NBER Working Papers 19744, National Bureau of Economic Research, Inc.
    4. Carlos Garriga & Finn E. Kydland & Roman Šustek, 2015. "Mortgages and Monetary Policy," Working Papers 751, Queen Mary University of London, School of Economics and Finance.
    5. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    6. Daniel Greenwald, 2016. "The Mortgage Credit Channel of Macroeconomic Transmission," 2016 Meeting Papers 1551, Society for Economic Dynamics.
    7. Benjamin J. Keys & Tomasz Piskorski & Amit Seru & Vincent Yao, 2014. "Mortgage Rates, Household Balance Sheets, and the Real Economy," NBER Working Papers 20561, National Bureau of Economic Research, Inc.
    8. Fuster, Andreas & Guttman-Kenney, Benedict & Haughwout, Andrew F., 2018. "Tracking and stress-testing U.S. household leverage," Economic Policy Review, Federal Reserve Bank of New York, issue 24-1, pages 35-63.
    9. Arlene Wong, 2016. "Population aging and the transmission of monetary policy to consumption," 2016 Meeting Papers 716, Society for Economic Dynamics.
    10. Rodney Ramcharan & Amir Kermani & Marco Di Maggio, 2015. "Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging," 2015 Meeting Papers 256, Society for Economic Dynamics.
    11. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
    12. Sumit Agarwal & Gene Amromin & Souphala Chomsisengphet & Tim Landvoigt & Tomasz Piskorski & Amit Seru & Vincent Yao, 2015. "Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program," NBER Working Papers 21512, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Hintermaier, Thomas & Koeniger, Winfried, 2018. "Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission," Economics Working Paper Series 1806, University of St. Gallen, School of Economics and Political Science.
    2. Koeniger, Winfried & Ramelet, Marc-Antoine, 2018. "Home Ownership and Monetary Policy Transmission," IZA Discussion Papers 11950, Institute of Labor Economics (IZA).
    3. repec:wly:jmoncb:v:51:y:2019:i:5:p:1309-1353 is not listed on IDEAS
    4. Xiaoqing Zhou, 2018. "Home Equity Extraction and the Boom-Bust Cycle in Consumption and Residential Investment," 2018 Meeting Papers 795, Society for Economic Dynamics.
    5. Boyarchenko, Nina & Haddad, Valentin & Plosser, Matthew, 2016. "The Federal Reserve and market confidence," Staff Reports 773, Federal Reserve Bank of New York, revised 01 Apr 2017.
    6. Javier Cravino & Ting Lan & Andrei A. Levchenko, 2018. "Price Stickiness along the Income Distribution and the Effects of Monetary Policy," Working Papers 661, Research Seminar in International Economics, University of Michigan.
    7. Stephan Luck & Thomas Zimmermann, 2018. "Employment Effects of Unconventional Monetary Policy : Evidence from QE," Finance and Economics Discussion Series 2018-071, Board of Governors of the Federal Reserve System (US).
    8. repec:bin:bpeajo:v:49:y:2019:i:2018-01:p:429-513 is not listed on IDEAS
    9. repec:oup:rfinst:v:32:y:2019:i:6:p:2107-2148. is not listed on IDEAS
    10. Timothy McQuade & Arvind Krishnamurthy & Adam Guren, 2016. "Mortgage Design in an Equilibrium Model of the Housing Market," 2016 Meeting Papers 371, Society for Economic Dynamics.
    11. Atif R. Mian & Amir Sufi, 2018. "Finance and Business Cycles: The Credit-Driven Household Demand Channel," NBER Working Papers 24322, National Bureau of Economic Research, Inc.
    12. Matteo Benetton & Davide Fantino, 2018. "Competition and the pass-through of unconventional monetary policy: evidence from TLTROs," Temi di discussione (Economic working papers) 1187, Bank of Italy, Economic Research and International Relations Area.
    13. Bruno Albuquerque, 2019. "One Size Fits All? Monetary Policy and Asymmetric Household Debt Cycles in U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1309-1353, August.
    14. Choi, Chi-Young & Chudik, Alexander, 2017. "Geographic Inequality of Economic Well-being among U.S. Cities: Evidence from Micro Panel Data," Globalization Institute Working Papers 330, Federal Reserve Bank of Dallas.
    15. François Geerolf & Thomas Grjebine, 2018. "Property Tax Shocks and Macroeconomics," Working Papers 2018-03, CEPII research center.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis

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