Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250725 
Year of Publication: 
2021
Series/Report no.: 
Working Papers No. 21-8
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
We study the mortgage cash flow channel of monetary policy transmission under fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) regimes by comparing the United States with primarily long-term FRMs and Spain with primarily ARMs that automatically reset annually. We find a robust transmission of mortgage rate changes to spending in both countries but surprisingly a larger effect in the United States-and provide two explanations for this finding. First, there are channels of transmission other than the mortgage cash flow effect since other interest rates co-move with the mortgage rate. Second, while mortgage resets in Spain are automatic and typically small, mortgagors in the United States must actively refinance to lock in lower rates. As a result, the mortgage cash flow effect in Spain is homogeneous across mortgagors and symmetric for rate increases and decreases, whereas in the United States the effect is largest when rates decline, especially for households identified as likely refinancers.
Subjects: 
consumption
intertemporal household choice
monetary policy transmission
adjustable-rate mortgages
fixed-rate mortgages
JEL: 
E21
E52
D15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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