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The paper argues that fixed-rate, prepayable mortgages create a debt structure where stimulative capacity depends on the prior interest-rate path, not only on the current rate level. Using a household model of mortgage prepayment calibrated to detailed loan-level evidence on prepayment incentives, it shows that recent rate trajectories can become headwinds for future monetary stimulus.",{"@graph":69,"@context":123},[70,84,106],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/mortgage-prepayment-and-path-dependent-effects-of-monetary-policy-working-paper-25157/203349/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/mortgage-prepayment-and-path-dependent-effects-of-monetary-policy-working-paper-25157/203349.png","ImageObject",300,407,{"name":92,"@type":93},"Eliana","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-18","2026-09-04",true,{"@type":102,"interactionType":103,"userInteractionCount":105},"InteractionCounter",{"@type":104},"ViewAction",13,{"@type":107,"mainEntity":108},"FAQPage",[109,115,119],{"name":110,"@type":111,"acceptedAnswer":112},"Why does mortgage prepayment make monetary policy effects path dependent?","Question",{"text":113,"@type":114},"Because households with fixed-rate prepayable mortgages respond to incentives shaped by both current and prior interest-rate levels. Past rates determine how many borrowers already locked in low terms, limiting refinancing responses to today’s rate cuts.","Answer",{"name":116,"@type":111,"acceptedAnswer":117},"What does the paper claim about the Fed’s ability to stimulate when cutting rates?",{"text":118,"@type":114},"The paper argues that stimulative power depends on the recent interest-rate path. 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Berger  \nKonstantin Milbradt  \nFabrice Tourre  \nJoseph Vavra  \nWorking Paper 25157  \n[http://www.nber.org/papers/w25157](http://www.nber.org/papers/w25157)  \nNATIONAL BUREAU OF ECONOMIC RESEARCH  \n1050 Massachusetts Avenue  \nCambridge, MA 02138  \nOctober 2018  \nWe would like to thank Dajoing Zhai, Ariza Gusti and Yang Zhang for excellent research assistance. We would also like to thank our discussant Dan Greenwald as well as Erik Hurst, Andreas Fuster, Pascal Noel, Amir Sufi, Amit Seru, Sam Hanson, Gadi Barlevy, Anil Kashyap, Arlene Wong, Greg Kaplan, Adi Sunderam and seminar participants at NYU, NBER ME, Duke, Northwestern Housing and Macro Conference, the ECB, Arizona State, the Chicago Fed, Marquette, Copenhagen Business School, EIEF, University of Munich, the Bank of Canada and the Philadelphia Fed. This research was supported by the Institute for Global Markets and the Fama-Miller Center at the University of Chicago Booth School of Business, and the Guthrie Center for Real Estate Research at Kellogg. Fabrice Tourre is also affiliated with the Danish Finance Institute and kindly acknowledges its financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.  \nNBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.  \n© 2018 by David W. Berger, Konstantin Milbradt, Fabrice Tourre, and Joseph Vavra. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.  \nMortgage Prepayment and Path-Dependent Effects of Monetary Policy David W. Berger, Konstantin Milbradt, Fabrice Tourre, and Joseph Vavra NBER Working Paper No. 25157  \nOctober 2018  \nJEL No. E0,E2,E4,E43,E5,E52,E58  \nABSTRACT  \nHow much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loanlevel evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.  \nDavid W. Berger  \nDepartment of Economics Northwestern University 2001 Sheridan Road Evanston, IL 60208 and NBER [david.berger@northwestern.edu](david.berger@northwestern.edu)  \nKonstantin Milbradt  \nKellogg School of Management Northwestern University 2001 Sheridan Rd \\#401 Evanston, IL 60208 and NBER [milbradt@northwestern.edu](milbradt@northwestern.edu)  \nFabrice Tourre  \nFinance Department Copenhagen Business School Campus Solbjerg Plads 3-A4.01 2000 Frederiksberg  \nDenmark [ft.fi@cbs.dk](ft.fi@cbs.dk)  \nJoseph Vavra  \nBooth School of Business University of Chicago  \n5807 South Woodlawn Avenue Chicago, IL 60637 and NBER [joseph.vavra@chicagobooth.edu](joseph.vavra@chicagobooth.edu)  \n1 Introduction  \nHow much room does the Federal Reserve have to stimulate the economy by lowering interest rates? Atthe end of 2015, the Fed ended its extended period of zero interest rates, and it has steadily increased rates since then. Higher interest rates leave more room for future cuts. However, in this paper we argue that looking only at current rates provides an incomplete view of Fed stimulative power, and that it may take an extended period of time with elevated rates before the Fed regains \"ammunition\" to stimulate the economy.  \nIn particular, we argue that the presence of vast amounts of US household debt in the fo","cbCaik6LYRvLzWEv","https://ap.wps.com/l/cbCaik6LYRvLzWEv","pdf",765467,"English","# Abstract\n# Introduction\n## Interest-rate stimulus vs. path dependence\n## Example of refinancing incentives\n## Figure 1: Outstanding vs. current market mortgage rates","[{\"question\":\"Why does mortgage prepayment make monetary policy effects path dependent?\",\"answer\":\"Because households with fixed-rate prepayable mortgages respond to incentives shaped by both current and prior interest-rate levels. Past rates determine how many borrowers already locked in low terms, limiting refinancing responses to today’s rate cuts.\"},{\"question\":\"What does the paper claim about the Fed’s ability to stimulate when cutting rates?\",\"answer\":\"The paper argues that stimulative power depends on the recent interest-rate path. Recent elevated rates may reduce refinancing activity, creating headwinds for future monetary stimulus even when current rates are cut.\"},{\"question\":\"What approach does the paper use to support its argument?\",\"answer\":\"It builds a household model of mortgage prepayment and matches it to detailed loan-level evidence linking prepayment behavior to rate incentives, then interprets results in the context of mortgage rate dynamics.\"}]","Mortgage Prepayment and Path-Dependent Effects of Monetary Policy - Working Paper 25157 | PDF",151]