Working Paper: NBER ID: w31464
Authors: Joshua Bosshardt; Marco Di Maggio; Ali Kakhbod; Amir Kermani
Abstract: This paper studies how tightening monetary policy transmits to the economy through the mortgage market and sheds new light on the distributional consequences at both individual and regional levels. We find that credit supply factors, specifically restrictions on the debt-to-income (DTI) ratio, account for most of the decline in mortgages. These effects are even more pronounced for minority and middle-income borrowers, who find themselves excluded from the credit market. Additionally, regions with historically high DTI ratios exhibit greater reductions in mortgage originations, house prices, and consumption.
Keywords: Monetary Policy; Credit Supply; Debt-to-Income Ratio; Distributional Impacts; Mortgage Market
JEL Codes: E20; E5; E52; G5; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tightening monetary policy (E52) | Decline in mortgage originations (G21) |
| Increased interest rates (E43) | Greater proportion of borrowers exceeding DTI thresholds (G51) |
| Binding nature of DTI constraints (C69) | Constrained credit availability (E51) |
| Higher DTI ratios (Y10) | Greater reductions in loan availability for minority and middle-income borrowers (G51) |
| Regions with high DTI ratios (R11) | Greater reductions in house prices and consumption (E21) |