Disagreement and Monetary Policy

Falck, Elisabeth; Hoffmann, Mathias; Hürtgen, Patrick

doi:10.2139/ssrn.3049267

Cited by 4 publications

(3 citation statements)

References 56 publications

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“…26 While a further in-depth investigation of the exact link between IU and monetary policy transmission via the term structure is beyond the scope of this work, we point out two conjectures. First, our results are broadly consistent with model predictions and empirical results by Ehling et al (2018) who demonstrate that disagreement between investors about future inflation could raise, inter alia, nominal and real yields above the potential effect of inflation disagreement on inflation expectations (see also Falck et al, 2017, for the effect of inflation disagreement on inflation expectations). Importantly, it is found that inflation disagreement is mainly linked to nominal yields via its effect on real yields.…”

Section: Iu Monetary Policy and The Term Structuresupporting

confidence: 90%

“…Berument et al (2005) andFountas et al (2006) provide a review of the empirical and theoretical literature regarding the effects of IU on interest rates and economic performance.7 We emphasize that the model predictions and empirical results are based on long-term IU (seeBall et al, 1990, for a discussion of IU effects at distinguished horizons).8 Recently,Falck et al (2017) have provided evidence that the impact of monetary policy surprises on inflation expectations depends of the degree of inflation disagreement among agents.…”

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confidence: 99%

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Less Bang for the Buck? Assessing the Role of Inflation Uncertainty for U.S. Monetary Policy Transmission in a Data Rich Environment

Herwartz

Rohloff

2018

SSRN Journal

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We investigate the relationship between inflation uncertainty and monetary policy transmission in the U.S. economy. Monetary policy shocks are identified within the framework of nonlinear structural factor-augmented VARs which allow us to analyze several complementary hypotheses connecting IU with reduced monetary policy effectiveness. We find that the real effects of monetary policy shocks are markedly dampened conditional on high IU. This can be traced back to, inter alia, real-option and precautionary savings effects which distort the traditional interest rate channel. Moreover, policy transmission through the external finance premium and the term structure of interest rates appears strongly dependent on inflation uncertainty and contributes to the reduced policy effectiveness.

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Section: Iu Monetary Policy and The Term Structuresupporting

confidence: 90%

mentioning

confidence: 99%

Less Bang for the Buck? Assessing the Role of Inflation Uncertainty for U.S. Monetary Policy Transmission in a Data Rich Environment

Herwartz

Rohloff

2018

SSRN Journal

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“…Borrowers anticipate further adjustments in mortgage rates and antedate/delay planned activities of extracting equity from their homes. This story could partially explain the im-pact increases of real sector variables such as consumption, residential investment and GDP, which display a puzzle common to local projection estimation (see also Tenreyro andThwaites, 2016, or Falck, Hoffmann, andHürtgen, 2017). Overall, responses are mostly significant at the 10% level, but error bands are relatively wide, pointing to possible heterogeneities in responses.…”

Section: Baseline Resultsmentioning

confidence: 96%

Monetary Policy, Housing, and Collateral Constraints

Franz

2017

SSRN Journal

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In the U.S., prevailing loan-to-value (LTV) ratios in mortgage markets are not only important for house-purchasing decisions of credit-constrained homebuyers. The relative ease with which existing homeowners can extract equity from real estate additionally renders them a major determinant of mortgage equity withdrawal (MEW) decisions, a non-negligible source of U.S. household finance. As monetary policy influences house prices via its pass-through to mortgage rates it, in turn, also shifts the collateral valuation of homeowners and the required downpayments of potential homebuyers. In this paper, I raise the question as to the extent to which prevailing LTV ratios on U.S. mortgage markets affect the strength of the so-called collateral constraint channel and, thereby, the transmission of monetary policy towards the real economy. Contribution Previous research largely ignored real estate and, especially, its role as collateral in the transmission of monetary policy. By estimating a non-linear model, I allow the transmission of monetary policy in the U.S. to depend on the prevailing LTV ratio in mortgage markets. The approach takes advantage of the relatively homogeneous mortgage market throughout the U.S. and exploits time-variation in average LTV ratios. Findings from the estimation provide novel insight into a mostly unexplored monetary transmission channel. Results In times of high LTV ratios, effects of monetary policy on real mortgage credit, real house prices, real consumption of durables and non-durables, and, ultimately, on real GDP are more pronounced. Apparently, these findings can be at least partially accounted for by a stronger reaction of MEWs when LTV ratios are high. Additionally, LTV ratios in the U.S. are shown to be highly procyclical such that they can deliver a theoretical underpinning of previous findings on a less powerful transmission of monetary policy during recessions. Furthermore, non-linearities in the transmission are mostly due to contractionary shocks in line with predictions of the literature on occasionally binding constraints.

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Communication without Consensus: Forward Guidance, Central Bank Projections, and Private Sector Expectations

Binder

2018

SSRN Journal

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Disagreement and Monetary Policy

Cited by 4 publications

References 56 publications

Less Bang for the Buck? Assessing the Role of Inflation Uncertainty for U.S. Monetary Policy Transmission in a Data Rich Environment

Less Bang for the Buck? Assessing the Role of Inflation Uncertainty for U.S. Monetary Policy Transmission in a Data Rich Environment

Monetary Policy, Housing, and Collateral Constraints

Communication without Consensus: Forward Guidance, Central Bank Projections, and Private Sector Expectations

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