Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

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

Research output: Contribution to conferencePaperResearchpeer-review


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 repayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.
Original languageEnglish
Publication date2019
Number of pages58
Publication statusPublished - 2019
EventConsumer Finance: Micro and Macro Approaches - Becker Friedman Institute, University of Chicago, Chicago, United States
Duration: 10 May 201911 May 2019


ConferenceConsumer Finance: Micro and Macro Approaches
LocationBecker Friedman Institute, University of Chicago
Country/TerritoryUnited States
Internet address


  • Monetary policy
  • Path-dependence
  • Refinancing
  • Mortgage debt

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