Mortgage Prepayment and Path-dependent Effects of Monetary Policy

David 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 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.
Original languageEnglish
Publication date2019
Number of pages58
Publication statusPublished - 2019
Event2019 Annual Meeting of the Society for Economic Dynamics - Washington University in St. Louis and Federal Reserve Bank of St. Louis, St. Louis, United States
Duration: 27 Jun 201929 Jul 2019
https://www.sed2019stlouis.org/

Conference

Conference2019 Annual Meeting of the Society for Economic Dynamics
LocationWashington University in St. Louis and Federal Reserve Bank of St. Louis
CountryUnited States
CitySt. Louis
Period27/06/201929/07/2019
Internet address

Keywords

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

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