Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

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

Research output: Contribution to conferencePaperResearchpeer-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 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
https://bfi.uchicago.edu/event/consumer-finance-micro-and-macro-approaches/

Conference

ConferenceConsumer Finance: Micro and Macro Approaches
LocationBecker Friedman Institute, University of Chicago
CountryUnited States
CityChicago
Period10/05/201911/05/2019
Internet address

Keywords

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

Cite this

Berger, D. W., Milbradt, K., Tourre, F., & Vavra, J. (2019). Mortgage Prepayment and Path-Dependent Effects of Monetary Policy. Paper presented at Consumer Finance: Micro and Macro Approaches, Chicago, United States.
Berger, David W. ; Milbradt, Konstantin ; Tourre, Fabrice ; Vavra, Joseph. / Mortgage Prepayment and Path-Dependent Effects of Monetary Policy. Paper presented at Consumer Finance: Micro and Macro Approaches, Chicago, United States.58 p.
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Berger, DW, Milbradt, K, Tourre, F & Vavra, J 2019, 'Mortgage Prepayment and Path-Dependent Effects of Monetary Policy' Paper presented at, Chicago, United States, 10/05/2019 - 11/05/2019, .

Mortgage Prepayment and Path-Dependent Effects of Monetary Policy. / Berger, David W.; Milbradt, Konstantin; Tourre, Fabrice; Vavra, Joseph.

2019. Paper presented at Consumer Finance: Micro and Macro Approaches, Chicago, United States.

Research output: Contribution to conferencePaperResearchpeer-review

TY - CONF

T1 - Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

AU - Berger, David W.

AU - Milbradt, Konstantin

AU - Tourre, Fabrice

AU - Vavra, Joseph

PY - 2019

Y1 - 2019

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 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.

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 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.

KW - Monetary policy

KW - Path-dependence

KW - Refinancing

KW - Mortgage debt

KW - Monetary policy

KW - Path-dependence

KW - Refinancing

KW - Mortgage debt

M3 - Paper

ER -

Berger DW, Milbradt K, Tourre F, Vavra J. Mortgage Prepayment and Path-Dependent Effects of Monetary Policy. 2019. Paper presented at Consumer Finance: Micro and Macro Approaches, Chicago, United States.