State-Dependent Effects of Monetary Policy: The Refinancing Channel

Eichenbaum, Martin; Rebelo, Sérgio; Wong, Arlene

doi:10.1257/aer.20191244

Cited by 46 publications

(14 citation statements)

References 70 publications

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“…Our paper is related to the literature on the role of household balance sheet channel in the transmission of economic shocks (e.g., , 2014aGuerrieri and Uhlig 2016;Hurst et al 2016;Agarwal et al 2017Agarwal et al , 2018Agarwal et al , 2020Berger et al 2017 andBenmelech et al 2017;Kaplan et al 2017;Favilukis et al 2017;Di Maggio 2017Greenwald 2018, Guren et al 2018Auclert 2019;Beraja et al 2019, Eichenbaum et al 2019Andersen et al 2020). Within this literature our paper contributes to the recent studies that analyze the effects of various stabilization programs operating through the household balance sheet channel (e.g., Mian and Sufi 2012;Parker et al 2013;Hsu et al 2018;Berger et al 2020) and especially the empirical studies focusing on various forms of debt relief (e.g., Agarwal et al 2010;Mayer et al 2014;Scharfstein and Sunderam 2016;Ganong and Noel 2017;Di Maggio et al 2017Maturana 2017;Kruger 2018;Piskorski and Seru 2018;Auclert et al 2019;Mueller and Yannelis 2020).…”

Section: I: Introductionmentioning

confidence: 99%

Government and Private Household Debt Relief during COVID-19

Cherry¹,

Jiang²,

Matvos³

et al. 2022

Brookings Papers on Economic Activity

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We follow a representative panel of US borrowers to study the suspension of household debt payments (debt forbearance) during the COVID-19 pandemic. Between March and October of 2020, loans worth$2 trillion entered forbearance. On average, cumulative payments missed per individual in forbearance during this period were largest for mortgage ($3,200) and auto ($430) borrowers. We estimate that more than 60 million borrowers will miss $70 billion on their debt payments by the end of 2021:Q1. This large amount of debt relief significantly dampened the household debt distress, which can help explain household delinquencies below pre-pandemic levels-a significant difference from other economic crises when delinquencies sharply increased along with unemployment. Forbearance thus may have had potentially large aggregate consequences for house prices and economic activity. Relief flows more to higher income individuals than those receiving stimulus checks, partially due to their higher debt balances: 60% of aggregate forbearance is provided to above median income borrowers. On the other hand, forbearance rates are higher among the more vulnerable populations: individuals with lower credit scores and lower incomes. Borrowers in regions with a higher likelihood of COVID-19 related economic shocks and higher shares of minorities were more likely to obtain debt relief. One third of borrowers in forbearance continued making full payments, suggesting that forbearance acts as a credit line, allowing borrowers to "draw" on payment deferral if needed. More than a quarter of total debt relief was provided by the private sector outside of the government mandates. Exploiting a discontinuity in mortgage eligibility under the CARES Act we estimate that implicit government debt relief subsidies increase the rate of forbearance by about 25%. Government and private relief follow similar patterns across income and creditworthiness, suggesting that borrower self-selection in requesting forbearance is an important determinant of debt relief incidence, and drives the distribution of relief across different population strata. Government relief is provided through private intermediaries, which differ in their propensity to supply relief, with shadow banks less likely to provide forbearance than traditional banks.

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Section: I: Introductionmentioning

confidence: 99%

Government and Private Household Debt Relief during COVID-19

Cherry¹,

Jiang²,

Matvos³

et al. 2022

Brookings Papers on Economic Activity

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“…24 See e.g., Gorodnichenko (2012, 2013); Ramey and Zubairy (2018); Barnichon, Debortoli and Matthes (2021) for studies on whether fiscal policy is more or less effective when the economy is in a high unemployment state, and Tenreyro and Thwaites (2016); Ascari and Haber (2021); Eichenbaum, Rebelo and Wong (2022) for studies on whether monetary policy is more or less effective when unemployment is high.…”

Section: State Dependencementioning

confidence: 99%

A Sufficient Statistics Approach for Macro Policy Evaluation

Barnichon¹,

Mesters²

2022

ERWP

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The evaluation of macroeconomic policy decisions has traditionally relied on the formulation of a specific economic model. In this work, we show that two statistics are sufficient to detect, often even correct, non-optimal policies, i.e., policies that do not minimize the loss function. The two sufficient statistics are (i) the effects of policy shocks on the policy objectives, and (ii) forecasts for the policy objectives conditional on the policy decision. Both statistics can be estimated without relying on a specific model. We illustrate the method by studying US monetary policy decisions.

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“…For instance, using the Euro Area area as a lab, Corsetti et al (2021) shows that the strength of monetary transmission strongly correlates with the country's homeownership rate and the fraction of adjustable rate mortgage contracts. Also, using U.S. data, Beraja et al (2019) and Eichenbaum et al (2018) note that the effect of monetary policy in the economy through the refinancing of mortgages, which usually results in mortgage payment savings for borrowers, depends on the distribution of savings in the economy and how much people can save in total by refinancing. The results in these two papers imply that monetary policy is path-dependent, meaning that the effect of today's monetary policy shocks may depend on the history of shocks.…”

Section: Literaturementioning

confidence: 99%