Mortgage debt and monetary policy

Economics

Speaker:Liam Graham, University of Warwick
Date: Friday 5 March 2004
Time: 16:15
Location: Room 106 Streatam Court

Further details

(with Stephen Wright)

How is monetary policy transmitted through its impact on mortgage borrowings? To address this question, we add an innovative model of financial institutions' behaviour to a dynamic general equilibrium model in which some households face credit constraints. We use this model to analyse the real effects of inflationary shocks, and derive implications for monetary policy. We show that the distribution of the costs of an inflationary shock between credit constrained and unconstrained households, and between those on fixed rate and floating rate debt depends on the predominant type of mortgage debt, and on the stance of monetary policy.