Mortgages and Monetary Policy

71 Pages Posted: 20 Dec 2013

See all articles by Carlos Garriga

Carlos Garriga

Federal Reserve Banks - Research Division

Finn Kydland

Carnegie Mellon University - David A. Tepper School of Business; Norwegian School of Economics (NHH) - Department of Economics

Roman Sustek

Bank of England - Monetary Assessment and Strategy Division

Multiple version iconThere are 3 versions of this paper

Date Written: December 2013

Abstract

Mortgages are long-term loans with nominal payments. Consequently, under incomplete asset markets, monetary policy can affect housing investment and the economy through the cost of new mortgage borrowing and real payments on outstanding debt. These channels, distinct from traditional real rate channels, are embedded in a general equilibrium model. The transmission mechanism is found to be stronger under adjustable- than fixed-rate mortgages. Further, monetary policy shocks affecting the level of the nominal yield curve have larger real effects than transitory shocks, affecting its slope. Persistently higher inflation gradually benefits homeowners under FRMs, but hurts them immediately under ARMs.

Suggested Citation

Garriga, Carlos and Kydland, Finn E. and Sustek, Roman, Mortgages and Monetary Policy (December 2013). NBER Working Paper No. w19744. Available at SSRN: https://ssrn.com/abstract=2370200

Carlos Garriga (Contact Author)

Federal Reserve Banks - Research Division ( email )

P.O. Box 442
St. Louis, MO 63166-0442
United States
(314) 444-7412 (Phone)
(314) 444-8731 (Fax)

Finn E. Kydland

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412 268-3691 (Phone)
412 268-7357 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Roman Sustek

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
14
Abstract Views
542
PlumX Metrics