Regional Heterogeneity and Monetary Policy /
Beraja, Martin.
Regional Heterogeneity and Monetary Policy / Martin Beraja, Andreas Fuster, Erik Hurst, Joseph Vavra. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23270 . - Working Paper Series (National Bureau of Economic Research) no. w23270. .
March 2017.
We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but that these effects vary over time with changes in the regional distribution of house price growth. We then build a heterogeneous household model of refinancing with both mortgage borrowers and lenders and use it to explore the aggregate implications for monetary policy arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.
Regional Heterogeneity and Monetary Policy / Martin Beraja, Andreas Fuster, Erik Hurst, Joseph Vavra. - Cambridge, Mass. National Bureau of Economic Research 2017. - 1 online resource: illustrations (black and white); - NBER working paper series no. w23270 . - Working Paper Series (National Bureau of Economic Research) no. w23270. .
March 2017.
We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but that these effects vary over time with changes in the regional distribution of house price growth. We then build a heterogeneous household model of refinancing with both mortgage borrowers and lenders and use it to explore the aggregate implications for monetary policy arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time.
System requirements: Adobe [Acrobat] Reader required for PDF files.
Mode of access: World Wide Web.