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Monetary Policy Wedges and the Long-term Liabilities of Households and Firms

Author

Listed:
  • Jules H. van Binsbergen
  • Marco Grotteria

Abstract

We examine the transmission of monetary policy shocks to the long-duration liabilities of households and firms using high-frequency variation in 10-year swap rates around FOMC announcements. We find that four weeks after the announcement mortgage rates move one-for-one with 10-year swap rates, leaving little explanatory power for mortgage concentration, bank market power, or credit risk. Variation in credit risk does materially affect monetary policy transmission to corporate bonds. Expected future short rates and term premia play a significant role in driving both mortgage rates and corporate bond yields, which explains the Federal Reserve’s increased focus on these quantities.

Suggested Citation

  • Jules H. van Binsbergen & Marco Grotteria, 2024. "Monetary Policy Wedges and the Long-term Liabilities of Households and Firms," NBER Working Papers 32137, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32137
    Note: AP CF IFM ME
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    More about this item

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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