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The Credit Supply Channel of Monetary Policy Tightening and its Distributional Impacts

Author

Listed:
  • Joshua Bosshardt
  • Marco Di Maggio
  • Ali Kakhbod
  • Amir Kermani

Abstract

This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both individual and regional levels. We find that credit supply factors, specifically restrictions on the debt-to-income (DTI) ratio, account for most of the decline in mortgages. These effects are even more pronounced for minority and middle-income borrowers, who find themselves excluded from the credit market. Additionally, regions with historically high DTI ratios exhibit greater reductions in mortgage originations, house prices, and consumption.

Suggested Citation

  • Joshua Bosshardt & Marco Di Maggio & Ali Kakhbod & Amir Kermani, 2023. "The Credit Supply Channel of Monetary Policy Tightening and its Distributional Impacts," NBER Working Papers 31464, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31464
    Note: CF ME
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    Cited by:

    1. Olivier De Jonghe & Konstantins Benkovskis & Karolis Bielskis & Diana Bonfim & Margherita Bottero & Tamas Briglevics & Martin Cesnak & Mantas Dirma & Marina Emiris & Palma Filep-Mosberger & Valentin J, 2025. "Household borrowing and monetary policy transmission: post-pandemic insights from nine European credit registers," Temi di discussione (Economic working papers) 1509, Bank of Italy, Economic Research and International Relations Area.
    2. Bruno Albuquerque & Martin Iseringhausen & Frederic Opitz, 2024. "The Housing Supply Channel of Monetary Policy," IMF Working Papers 2024/023, International Monetary Fund.
    3. Kristopher Gerardi & Franklin Qian & David Hao Zhang, 2024. "Mortgage Lock-in, Lifecycle Migration, and the Welfare Effects of Housing Market Liquidity," FRB Atlanta Working Paper 15, Federal Reserve Bank of Atlanta.
    4. Montano Pierina & Quineche, Ricardo & Tipo, Royer, 2025. "Distributional Patterns in US Monetary Transmission: Quantile Cointegration Evidence," EconStor Preprints 323756, ZBW - Leibniz Information Centre for Economics.
    5. Renata Karkowska & Zbigniew Korzeb & Anna Matysek & Paweł Niedziółka, 2025. "Governance, business model and size as drivers of loan’s portfolio management and provisioning in European banks," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(3), pages 590-609, September.
    6. Schepens, Glenn & Core, Fabrizio & De Marco, Filippo & Eisert, Tim, 2025. "Inflation and floating-rate loans: evidence from the euro-area," Working Paper Series 3064, European Central Bank.
    7. Bosshardt, Joshua & Kakhbod, Ali & Kermani, Amir, 2025. "Do intermediaries improve GSE lending? Evidence from proprietary GSE data," Journal of Financial Economics, Elsevier, vol. 170(C).

    More about this item

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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