Mortgages and monetary policy
نویسندگان
چکیده
How is monetary policy transmitted through its impact on mortgage borrowings? How does this transmission mechanism depend on whether mortgages are fixed or floating rate? To address these questions, we add a 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 question the conventional wisdom that inflationary shocks necessarily benefit debtors and provide a rationale for interest rate smoothing on the part of central banks.
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