Posted

February 17, 2015 10:18:37 AM

Date

2013-12

Author

Carlos Garriga, Finn E. Kydland, and Roman Šustek

Affiliation

Federal Reserve Bank of St. Louis, University of California–Santa Barbara and NBER, and Queen Mary, University of London and Centre for Macroeconomics, London School of Economics sustek19@gmail.com.

Title

Mortgages and monetary policy

Summary /
Abstract

Mortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be important. A general equilibrium model is developed to address this question. The transmission is found to be stronger under adjustable- than fixed-rate contracts. The source of impulse also matters: persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates.

Keywords

Mortgages; debt servicing costs; monetary policy; transmission mechanism; housing investment

URL

http://eprints.lse.ac.uk/58248/1/__lse.ac.uk_storage_LIBRARY_Secondary_libfile_shared_repository_Content_Centre%20For%20Macroeconomics%20discussion%20papers_Mortgages%20monetary%20policy_Garriga_Mortgages%20monetary%20policy_2014.pdf

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