Take Action

Home | Faculty & Research Overview | Research

Research Details

Mortgage Prepayment and Path-Dependent Effects of Monetary Policy

Abstract

How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial debt in fixed-rate, prepayable mortgages means that the ability to stimulate the economy by cutting interest rates depends not just on their current level but also on their previous path. Using a household model of mortgage prepayment matched to detailed loan- level evidence on the relationship between prepayment and rate incentives, we argue that recent interest rate paths will generate substantial headwinds for future monetary stimulus.

Type

Working Paper

Author(s)

Konstantin Milbradt, David Berger, Joe Vavra, Fabrice Tourre

Date Published

2018

Citations

Milbradt, Konstantin, David Berger, Joe Vavra, and Fabrice Tourre. 2018. Mortgage Prepayment and Path-Dependent Effects of Monetary Policy.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action