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Annual Review of Financial Economics

Volume 12, 2020

Refinancing, Monetary Policy, and the Credit Cycle

Abstract

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 USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, 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.

Keyword(s): consumption, credit constraints, fixed-rate mortgage, JEL D12, JEL D14, JEL E50, JEL G21, JEL G51, JEL R31, monetary policy, mortgage rates, refinance
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2020-11-01
2024-04-19
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/content/journals/10.1146/annurev-financial-012720-120430
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Refinancing, Monetary Policy, and the Credit Cycle
Annual Review of Financial Economics 12, 67 (2020); https://doi.org/10.1146/annurev-financial-012720-120430
/content/journals/10.1146/annurev-financial-012720-120430
/content/journals/10.1146/annurev-financial-012720-120430
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