Working Paper: NBER ID: w26427
Authors: Carlos Garriga; Finn E. Kydland; Roman Ustek
Abstract: There has been much interest recently in the role of household long-term, mortgage, debt in the transmission of monetary policy. This paper offers a tractable framework that integrates the long-term debt channel with the standard New-Keynesian channel, providing a tool for monetary policy analysis that reflects the recent debates in the literature. As the model includes both short- and long-term debt, it provides a useful laboratory for the analysis of monetary policy operating not only through short-term actions, as has been done traditionally in the literature, but also through expected, persistent, changes in its stance.
Keywords: Monetary Policy; Mortgage Debt; New Keynesian Model
JEL Codes: E52; G21; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| household long-term debt (G51) | effectiveness of monetary policy (E52) |
| monetary policy actions (E52) | household consumption (D10) |
| monetary policy actions (E52) | housing investment decisions (R21) |
| mortgage type (G21) | transmission of monetary policy (E52) |
| expectations about future monetary policy (E60) | long-term interest rates (E43) |
| monetary policy actions (E52) | mortgage rates (G21) |
| fixed-rate mortgages (FRM) (G21) | interest rates on outstanding debt (E43) |
| adjustable-rate mortgages (ARM) (G21) | interest rates on outstanding debt (E43) |