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A general equilibrium model shows stronger effects under adjustable-rate than fixed-rate contracts, and highlights that persistent inflation shocks generate larger impacts than cyclical fluctuations in inflation and nominal interest rates.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/mortgages-and-monetary-policy-abstract-and-introduction/203238/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":49,"encodingFormat":47,"isAccessibleForFree":50,"interactionStatistic":51},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/mortgages-and-monetary-policy-abstract-and-introduction/203238.png","ImageObject",300,407,{"name":42,"@type":43},"Lucas Martin","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-11-08","2026-09-04",true,{"@type":52,"interactionType":53,"userInteractionCount":55},"InteractionCounter",{"@type":54},"ViewAction",12,{"@type":57,"mainEntity":58},"FAQPage",[59,65,69],{"name":60,"@type":61,"acceptedAnswer":62},"Why do standard mortgage loans create nominal rigidity in monetary transmission?","Question",{"text":63,"@type":64},"Fully amortizing mortgages require homeowners to make nominal interest and principal payments over the loan’s life, so monetary changes influence borrowers through the cost of new borrowing and the payment burden on existing debt.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How does the paper compare adjustable-rate mortgages and fixed-rate mortgages?",{"text":68,"@type":64},"The transmission of monetary policy is stronger under adjustable-rate contracts than under fixed-rate contracts, because payments adjust with current nominal interest rates.",{"name":70,"@type":61,"acceptedAnswer":71},"What type of inflation shock produces larger effects in the model?",{"text":72,"@type":64},"Persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates, indicating the source of the impulse matters for transmission strength.","https://schema.org",{"og:url":32,"og:type":75,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":77,"canonical":32},"index,follow",{"doc_id":79,"site_id":7},203238,1788557484,{"code":4,"msg":82,"data":83},"success",[84,88,92,96,101,106,111,115,120,123,127],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":85,"show_sort_weight":86,"slug":87},"Story & Novel",90,"story-novel",{"id":26,"doc_module":4,"doc_module_name":25,"category_name":89,"show_sort_weight":90,"slug":91},"Literature",80,"literature",{"id":33,"doc_module":4,"doc_module_name":25,"category_name":93,"show_sort_weight":94,"slug":95},"Exam",70,"exam",{"id":97,"doc_module":4,"doc_module_name":25,"category_name":98,"show_sort_weight":99,"slug":100},5,"Comic",60,"comic",{"id":102,"doc_module":4,"doc_module_name":25,"category_name":103,"show_sort_weight":104,"slug":105},6,"Technology",50,"technology",{"id":107,"doc_module":4,"doc_module_name":25,"category_name":108,"show_sort_weight":109,"slug":110},7,"Healthcare",40,"healthcare",{"id":112,"doc_module":4,"doc_module_name":25,"category_name":29,"show_sort_weight":113,"slug":114},8,30,"research-report",{"id":116,"doc_module":4,"doc_module_name":25,"category_name":117,"show_sort_weight":118,"slug":119},9,"Religion & Spirituality",20,"religion-spirituality",{"id":118,"doc_module":4,"doc_module_name":25,"category_name":121,"show_sort_weight":118,"slug":122},"World Cup","world-cup",{"id":124,"doc_module":4,"doc_module_name":25,"category_name":125,"show_sort_weight":124,"slug":126},10,"Lifestyle","lifestyle",{"id":128,"doc_module":4,"doc_module_name":25,"category_name":129,"show_sort_weight":97,"slug":130},19,"General","general",{"code":4,"msg":82,"data":132},{"doc_id":79,"user_id":133,"nickname":42,"user_avatar":134,"doc_module":4,"category_id":112,"category_name":29,"doc_title":10,"doc_description":12,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":55,"is_deleted":4,"is_public":22,"is_downloadable":22,"audit_status":22,"page_count":140,"language":141,"language_code":8,"site_id":7,"html_lang":8,"table_of_contents":142,"faqs":143,"seo_title":144,"seo_description":12,"update_tm":80,"read_time":145,"preview_page_count":4},8796095360427,"https://ap-avatar.wpscdn.com/davatar_994ba38a5ba835b3df7d355c54d3ed8d","Mortgages and Monetary Policy ∗  \nCarlos Garriga†‡, Finn E. Kydland§ and Roman ˇSustek¶  \nDecember 5, 2013  \nAbstract  \nMortgage loans are a striking example of a persistent nominal rigidity. As a result, under incomplete markets, monetary policy affects decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. Observed debt levels and payment to income ratios suggest the role of such loans in monetary transmission may be important. A general equilibrium model is developed to address this question. The transmission is found to be stronger under adjustable-than fixed-rate contracts. The source of impulse also matters: persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates.  \nJEL Classi􀀌cation Codes: E32, E52, G21, R21 .  \nKeywords: Mortgages, debt servicing costs, monetary policy, transmission mechanism, housing investment.  \n􀀃 We thank Morris Davis and Wouter den Haan for helpful suggestions. We are also grateful for comments to seminar participants at St. Louis Fed and IHS Vienna and conference participants at SAET in Paris and London Macro Workshop. The views expressed are those of the authors and not necessarily of the Federal Reserve Bank of St. Louis or the Federal Reserve System.  \ny Federal Reserve Bank of St. Louis; [Carlos.Garriga@stls.frb.org](Carlos.Garriga@stls.frb.org).  \nz Corresponding author: Carlos Garriga, address: Research Division, Federal Reserve Bank of St. Louis, P.O. Box 442, St. Louis, MO 63166-0442, U.S.A. , tel: +1 314 444-7412, fax: +1 314 444-8731, e-mail: [Carlos.Garriga@stls.frb.org](Carlos.Garriga@stls.frb.org).  \nx University of California–Santa Barbara and NBER; [kydland@econ.ucsb.edu](kydland@econ.ucsb.edu).  \n{ Queen Mary, University of London and Centre for Macroeconomics, London School of Economics; [sustek19@gmail.com](sustek19@gmail.com).  \n1 Introduction  \nMost theories of how monetary policy affects the real economy rely on some form of nominal rigidity. Frequently made assumptions, supported by empirical evidence, are that prices and wages of individual firms or households are pre-set in nominal terms for a given period of time, with the result that nominal variables under the control of a monetary authority affect relative prices and real incomes. A specific form of nominal rigidity, but somewhat overlooked in the literature, characterizes also standard mortgage loans. In particular, fullyamortizing mortgages require the homeowner to make nominal instalments—regular interest and amortization payments—for the duration of the loan. The installments are calculated soas to guarantee that the principal is repaid in full by the end of the loan’s life. A conventional fixed-rate mortgage (FRM) in the United States, for instance, carries a fixed nominal interest rate and prescribes constant nominal installments for the entire life of the loan, typically 30 years. An adjustable-rate mortgage (ARM), typical for the United Kingdom or Australia, also prescribes nominal installments, calculated each period so that, given the current shortterm nominal interest rate, the loan is expected to be repaid in full by the end of its life.1  \nThis paper studies the macroeconomic consequences of the nominal rigidity inherent in standard mortgage loans. In particular, our aim is to characterize the channels through which the rigidity facilitates the transmission of monetary policy into the real economy, especially into housing investment, and to investigate the strength of the transmission in general equilibrium. In order to isolate the effects of the rigidity, the paper abstracts from other nominal frictions.  \n1 The majority of mortgage loans in advanced economies are fully-amortizing mortgages with a term of 15 to 30 years, either FRMs or ARMs. On average, over the period 1982-2006, FRMs accounted for 70% of mortgage originations in the United States (Federal Housing Finance Agency, Monthly Interest Rate Survey, Table ","cbCaimUIlNFXtJi7","https://ap.wps.com/l/cbCaimUIlNFXtJi7","pdf",302998,58,"English","# Introduction\n## Mortgage nominal rigidity and loan contracts\n## Monetary policy channels through mortgage payments","[{\"question\":\"Why do standard mortgage loans create nominal rigidity in monetary transmission?\",\"answer\":\"Fully amortizing mortgages require homeowners to make nominal interest and principal payments over the loan’s life, so monetary changes influence borrowers through the cost of new borrowing and the payment burden on existing debt.\"},{\"question\":\"How does the paper compare adjustable-rate mortgages and fixed-rate mortgages?\",\"answer\":\"The transmission of monetary policy is stronger under adjustable-rate contracts than under fixed-rate contracts, because payments adjust with current nominal interest rates.\"},{\"question\":\"What type of inflation shock produces larger effects in the model?\",\"answer\":\"Persistent inflation shocks have larger effects than cyclical fluctuations in inflation and nominal interest rates, indicating the source of the impulse matters for transmission strength.\"}]","Mortgages and Monetary Policy - Abstract and Introduction | PDF",146]