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UID:4df4a75b725e66cc08e3ac787dbd924b
CATEGORIES:Seminars
CREATED:20180103T171808
SUMMARY:Konstantin Milbradt - Northwestern University
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:A Theory of the Mortgage Rate Pass-Through (joint with David Berger and Fab
 rice Tourre)\nAbstract:\nWe present an analytically tractable model of the 
 mortgage-rate pass through and the crosssection of coupon rates in the econ
 omy. Competitive banks offer downward adjustable fixed-rate risk-free mortg
 ages (“refinancing”) with current mortgage rate m(r) where r is the prevail
 ing short-rate the bank uses to finance the mortgage. Rational inattentive 
 consumers facing small adjustment cost refinance as soon as they become awa
 re of the current mortgage rate being below their individual mortgage rate.
  We analytically derive m(r) for general processes and the conditions for t
 he ergodic distribution of mortgage rates and short-rates in the economy. T
 he mortgage rate function m(r) is non-linear due to mean-reversion and the 
 one-sided refinancing option. Thus, monetary policy has a differential impa
 ct on the housing market depending on the level of the interest rate r and 
 the cross-sectional distribution of mortgage rates. Further, we model non-c
 ompetitive banks posting oligopolistic quotes, and how this reduces mortgag
 e rate pass-though. Lastly, we can easily incorporate default risk into the
  framework.\n\n
DTSTAMP:20260406T013332Z
DTSTART:20180604T163000Z
DTEND:20180604T180000Z
SEQUENCE:0
TRANSP:OPAQUE
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