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Long-Term Debt and Short-Term Rates: Fixed-Rate Mortgages and Monetary Transmission
Author:
Alessia De Stefani
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Rui Mano
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Series:
IMF Working Papers
Volume/Issue:
Volume 2025: Issue 024
Language:
English
Publication Date:
24 Jan 2025
DOI:
https://doi.org/10.5089/9798400296086.001
ISBN:
9798400296086
ISSN:
1018-5941
Pages:
39
Keywords:
Monetary Policy; Mortgage Markets; monetary policy shock; monetary policy transmission; mortgage choice; prevalence of FRMs; ARM rate; Mortgages; Central bank policy rate; Stocks; Housing prices; Private consumption; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stock by type of rate-fixation and monetary policy shocks cleaned of information effects. Using instrumental-variablel local projections, we find both path- and state-dependency in monetary transmission. Monetary policy shapes mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank's ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to key macro-variables.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund