MoNK: Mortgages in a New-Keynesian Model
Abstract: We propose a tractable framework for monetary policy analysis in which both short- and long-term debt affect equilibrium outcomes. This objective is motivated by observations from two literatures suggesting that monetary policy contains a dimension affecting expected future interest rates and thus the costs of long-term financing. In New-Keynesian models, however, long-term loans are redundant assets. We use the model to address three questions: what are the effects of statement vs. action policy shocks; how important are standard New- Keynesian vs. cash flow effects in their transmission; and what is the interaction between these two effects?
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2019-10-25
Pages: 65 pages