IMF Working Papers

Long-Term Debt and Short-Term Rates: Fixed-Rate Mortgages and Monetary Transmission

By Alessia De Stefani, Rui Mano

January 24, 2025

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Format: Chicago

Alessia De Stefani, and Rui Mano. "Long-Term Debt and Short-Term Rates: Fixed-Rate Mortgages and Monetary Transmission", IMF Working Papers 2025, 024 (2025), accessed March 19, 2025, https://doi.org/10.5089/9798400296086.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study the two-way relationship between fixed-rate mortgages (FRMs) and monetary policy in a panel of up to 35 countries over the last two decades. The dataset includes quarterly information on the composition of mortgage flows and stock by type of rate-fixation and monetary policy shocks cleaned of information effects. Using instrumental-variablel local projections, we find both path- and state-dependency in monetary transmission. Monetary policy shapes mortgage choice, increasing (decreasing) the share of FRMs during easing (tightening) cycles. Over time, this mechanism alters the composition of the outstanding mortgage stock which, in turn, affects the central bank's ability to stabilize the economy ex-post. A greater (lower) prevalence of FRMs weakens (strengthens) monetary policy transmission to key macro-variables.

Subject: Central bank policy rate, Financial institutions, Financial services, Housing prices, Mortgages, National accounts, Prices, Private consumption, Stocks

Keywords: ARM rate, Central bank policy rate, Global, Housing prices, Monetary Policy, Monetary policy shock, Monetary policy transmission, Mortgage choice, Mortgage Markets, Mortgages, Prevalence of FRMs, Private consumption, Stocks

Publication Details

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