Monk: Mortgages in a New-Keynesian Model

Posted: 6 Dec 2019 Last revised: 15 Dec 2019

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

Charles University in Prague

Multiple version iconThere are 2 versions of this paper

Date Written: October, 2019

Abstract

We propose a tractable framework for monetary policy analysis in which both short- and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New- Keynesian vs. cash flow effects in their transmission; and what is the interaction between these two effects?

Keywords: Mortgages, cash-flow effects, sticky prices, monetary policy transmission, monetary policy communication

JEL Classification: E52, G21, R21

Suggested Citation

Garriga, Carlos and Kydland, Finn E. and Sustek, Roman, Monk: Mortgages in a New-Keynesian Model (October, 2019). FRB St. Louis Working Paper No. 2019-32, Available at SSRN: https://ssrn.com/abstract=3494172 or http://dx.doi.org/10.20955/wp.2019-032

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

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

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