Monk: Mortgages in a New-Keynesian Model
Posted: 6 Dec 2019 Last revised: 15 Dec 2019
Date Written: October, 2019
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: Suggested Citation