Housing Finance and Monetary Policy
By A. Calza, Tommaso Monacelli, Livio Stracca. Social Science Research Network, 2009
451 citations recorded by the source corpus.
We study how the structure of housing finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly across industrialized countries; second, and according to a wide range of indicators, the transmission of monetary policy shocks to residential investment and house prices is significantly stronger in those countries with larger flexibility/development of mortgage markets; third, the transmission to consumption is stronger only in those countries where mortgage equity release is common and mortgage contracts are predominantly of the variable-rate type. We build a two-sector DSGE model with price stickiness and collateral constraints and analyse how the response of consumption and residential investment to monetary policy shocks is affected by alternative values of two institutional features: (i) down-payment rate; (ii) interest rate mortgage structure (variable vs. fixed rate). In line with our empirical evidence, the sensitivity of both variables to monetary policy shocks increases with lower values of the down-payment rate and is larger under a variable-rate mortgage structure. JEL Classification: E21, E44, E52
Subfields: Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/11e75305f741dd65488de39eee6853b7dcbda9ec
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Citations in the corpus
- Regional Heterogeneity and Monetary Policy (2019, unknown): “Households who are currently underwater must put up additional cash today in order to refinance while households with substantial equity can reduce their interest payments while also extracting equity and increasing consumption today.”
- How Does Monetary Policy Affect Income and Wealth Inequality? Evidence from Quantitative Easing in the Euro Area (2018, background): “For example, as also estimated by Calza et al. (2013), house price responsiveness to monetary policy is signi cantly stronger in countries with larger exibility/development of mortgage markets (e.g., in terms of the size of mortgage debt, extent of adjustable-rate mortgages or availability of equity”
- The Transmission of Monetary Policy through Bank Lending: The Floating Rate Channel (2017, unknown): “…to our mechanism, this literature suggests that monetary policy has real implications by influencing households’cost of servicing their floating rate debt and as a result their disposable income and consumption (Calza, Monacelli, and Stracca (2013), Di Maggio, Kermani, and Ramcharan (2014)).”
- Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism (2019, unknown): “As documented by Calza et al. (2013a), almost 75% of mortgages in the U.”
- The Mortgage Credit Channel of Macroeconomic Transmission (2016, unknown): “…the case of housing by Iacoviello (2005), an impressive body of scholarship has emerged incorporating housing and collateral constraints into a monetary DSGE environment, including Calza et al. (2013), , Garriga et al. (2015), Iacoviello and Neri (2010), Liu, Wang, and Zha (2013), and Rubio (2011).”
- Mortgage Design in an Equilibrium Model of the Housing Market (2018, unknown): “Relatedly, a set of papers have argued that adjustablerate mortgages allow for stronger transmission of monetary policy since rate changes directly affect household balance sheets (Calza et al., 2013; Auclert, 2019; Cloyne et al., 2019).”
- International Credit Supply Shocks (2017, unknown): “Calza et al. (2013) study how this elasticity depends on the mortgage market structure in a few advanced economies.”