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research article

Regional Heterogeneity and the Refinancing Channel of Monetary Policy

Beraja, Martin
•
Fuster, Andreas  
•
Hurst, Erik
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February 1, 2019
The Quarterly Journal of Economics

We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts, but these effects vary over time with changes in the regional distribution of house price growth. We build a heterogeneous household model of refinancing with mortgage borrowers and lenders and use it to explore the monetary policy implications arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time.

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Type
research article
DOI
10.1093/qje/qjy021
Author(s)
Beraja, Martin
Fuster, Andreas  
Hurst, Erik
Vavra, Joseph
Date Issued

2019-02-01

Published in
The Quarterly Journal of Economics
Volume

134

Issue

1

Start page

109

End page

183

Editorial or Peer reviewed

REVIEWED

Written at

OTHER

EPFL units
SFI-AF  
Available on Infoscience
December 7, 2021
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/183726
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