MoNK: Mortgages in a New-Keynesian Model

Abstract

There has been much interest recently in the role of household long-term, mortgage, debt in the transmission of monetary policy. This paper offers a tractable framework that integrates the long-term debt channel with the standard New-Keynesian channel, providing a tool for monetary policy analysis that reflects the recent debates in the literature. As there is a nontrivial role in the model for both short- and long-term debt, it provides a laboratory to investigate the effects of monetary policy operating not only through its current short-term actions but also through expected, persistent, changes in its stance.