Unconventional monetary policy and household debt: The role of cash-flow effects |
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| Institution: | 1. Lehigh University and DePauw University, 621 Taylor Street, Bethlehem, PA United States;2. Lehigh University, 621 Taylor Street, Bethlehem, PA United States;3. Department of Economics, The University of Texas at Dallas, 800 W. Campbell Rd GR 31, Richardson, TX 75080, United States;1. Faculty of Political Science, University of Teramo, Via R. Balzarini, 1, 64100 Teramo, Italy;2. Department of Economics and Business, LUISS Guido Carli, Viale Romania, 32, 00197 Rome, Italy;1. Department of Finance, ESCP Business School, Paris, France;2. Economix, University Paris-Nanterre, Nanterre, France;3. Economix, University Paris 2 ASSAS, Paris, France |
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| Abstract: | We study the transmission of conventional and unconventional monetary policy shocks via the loan market, distinguishing between adjustable- and fixed-rate mortgages (ARMs and FRMs, respectively) and focusing on the relative importance of the income channel. Under ARMs, a conventional monetary policy shock implies a temporary cash-flow effect leading to a redistribution between savers and borrowers, a feature that is weaker, but more persistent, under FRMs. Also, an easing via unconventional operations – modelled as a shift in households’ preferences that reduces the term premium on long-term loan rates – has an expansionary effect on output and inflation, although more muted than the one recorded via a conventional monetary policy shock. In the former case, we find a modest contribution of cash-flow effect to the dynamics of consumption. |
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