Working Paper: NBER ID: w22613
Authors: Carlos Garriga; Finn E. Kydland; Roman Ustek
Abstract: Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts. Focusing on mortgages, this paper compares the two channels of transmission within a common framework. The sticky price channel is dominant when shocks to the policy interest rate are temporary, the mortgage channel is important when the shocks are persistent. The first channel has significant aggregate effects but small redistributive effects. The opposite holds for the second channel. Using yield curve data decomposed into temporary and persistent components, the redistributive and aggregate consequences are found to be quantitatively comparable.
Keywords: nominal rigidities; debt markets; monetary policy; sticky prices; mortgage contracts
JEL Codes: E32; E52; G21; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sticky price channel (C54) | nominal interest rate (temporary shocks) (E43) |
| nominal interest rate (temporary shocks) (E43) | aggregate output (E10) |
| nominal interest rate (temporary shocks) (E43) | consumption (E21) |
| mortgage channel (G21) | nominal interest rate (persistent shocks) (E43) |
| nominal interest rate (persistent shocks) (E43) | redistribution of income from capital owners to homeowners (D33) |
| sticky price channel (C54) | aggregate effects (E10) |
| mortgage channel (G21) | redistributive effects (H23) |
| redistributive effects through debt markets (H23) | aggregate effects through sticky prices (C54) |