Regional Heterogeneity and Monetary Policy / Martin Beraja, Andreas Fuster, Erik Hurst, Joseph Vavra.

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Beraja, Martin

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w23270.Publication details: Cambridge, Mass. National Bureau of Economic Research 2017.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w23270 (Browse shelf(Opens below))	Not For Loan

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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.