Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/157243
Authors: 
Beraja, Martin
Fuster, Andreas
Hurst, Erik
Vavra, Joseph
Year of Publication: 
2017
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 731
Abstract: 
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 that these effects vary over time with changes in the regional distribution of house price growth and unemployment. We then build a heterogeneous household model of refinancing and use it to explore the aggregate implications for monetary policy 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 policymakers should track the regional distribution of equity over time.
Subjects: 
monetary policy
regional inequality
quantitative easing
mortgage refinancing
JEL: 
E21
E52
G21
Document Type: 
Working Paper

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