Mortgage Prepayment and Path-dependent Effects of Monetary Policy

David W. Berger*, Konstantin Milbradt*, Fabrice Tourre*, Joseph Vavra*

*Corresponding author af dette arbejde

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Abstrakt

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 loan-level evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.
OriginalsprogEngelsk
TidsskriftAmerican Economic Review
Vol/bind111
Udgave nummer9
Sider (fra-til)2829-2878
Antal sider50
ISSN0002-8282
DOI
StatusUdgivet - sep. 2021

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