Mortgage Prepayment and Path-dependent Effects of Monetary Policy

David Berger; Konstantin Milbradt; Fabrice Tourre; Joseph Vavra

Mortgage Prepayment and Path-dependent Effects of Monetary Policy

David Berger, Konstantin Milbradt, Fabrice Tourre, Joseph Vavra

Institut for Finansiering

Publikation: Konferencebidrag › Paper › Forskning › peer review

Abstract

How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loanlevel evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.

Originalsprog	Engelsk
Publikationsdato	2019
Antal sider	58
Status	Udgivet - 2019
Begivenhed	2019 Annual Meeting of the Society for Economic Dynamics - Washington University in St. Louis and Federal Reserve Bank of St. Louis, St. Louis, USA Varighed: 27 jun. 2019 → 29 jul. 2019 https://www.sed2019stlouis.org/

Konference

Konference	2019 Annual Meeting of the Society for Economic Dynamics
Lokation	Washington University in St. Louis and Federal Reserve Bank of St. Louis
Land/Område	USA
By	St. Louis
Periode	27/06/2019 → 29/07/2019
Internetadresse	https://www.sed2019stlouis.org/

Emneord

Monetary policy
Path-dependence
Refinancing
Mortgage debt

Adgang til dokumentet

https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=SED2019&paper_id=175Licens: Ikke-specificeret

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Citationsformater

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AU - Tourre, Fabrice

AU - Vavra, Joseph

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N2 - How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loanlevel evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.

AB - How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loanlevel evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.

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KW - Refinancing

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KW - Monetary policy

KW - Path-dependence

KW - Refinancing

KW - Mortgage debt

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