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UID:4df4a75b725e66cc08e3ac787dbd924b
CATEGORIES:Seminars
CREATED:20180103T171808
SUMMARY:Konstantin Milbradt - Northwestern University
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:<p style="margin-bottom: 0.0001pt; line-height: normal;"><strong>A Theory o
 f the Mortgage Rate Pass-Through</strong> (joint with David Berger and Fabr
 ice Tourre)</p><p style="margin-bottom: 0.0001pt; line-height: normal;"><st
 rong>Abstract:</strong></p><p style="margin-bottom: 0.0001pt; text-align: j
 ustify; line-height: normal;">We present an analytically tractable model of
  the mortgage-rate pass through and the crosssection of coupon rates in the
  economy. Competitive banks offer downward adjustable fixed-rate risk-free 
 mortgages (“refinancing”) with current mortgage rate m(r) where r is the pr
 evailing short-rate the bank uses to finance the mortgage. Rational inatten
 tive consumers facing small adjustment cost refinance as soon as they becom
 e aware of the current mortgage rate being below their individual mortgage 
 rate. We analytically derive m(r) for general processes and the conditions 
 for the ergodic distribution of mortgage rates and short-rates in the econo
 my. The mortgage rate function m(r) is non-linear due to mean-reversion and
  the one-sided refinancing option. Thus, monetary policy has a differential
  impact 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-competitive banks posting oligopolistic quotes, and how this reduces mo
 rtgage rate pass-though. Lastly, we can easily incorporate default risk int
 o the framework.</p><p style="text-align: justify;"><strong><span style="fo
 nt-size: 11pt; font-family: 'Calibri','sans-serif';"></span></strong></p>
DTSTAMP:20260407T055617Z
DTSTART:20180604T163000Z
DTEND:20180604T180000Z
SEQUENCE:0
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