Refinancing, Monetary Policy, and the Credit Cycle
We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the U.S. and documenting refinance activity over time, we summarize the links between refinancing and consumption, and describe the frictions impeding the refinancing channel. The paper draws heavily on research emerging from the experience of the financial crisis of 2008-09, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations, and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research, the Federal Reserve Board, or the Federal Reserve System.
Gene Amromin & Neil Bhutta & Benjamin J. Keys, 2020. "Refinancing, Monetary Policy, and the Credit Cycle," Annual Review of Financial Economics, vol 12(1).