Martin Eichenbaum, Sérgio Rebelo, Arlene Wong, 02 December 2018

Mortgage rate systems vary in practice across countries, and understanding the impact of these differences is critical to the design of optimal monetary policy. This column focuses on the US, where most mortgages have a fixed interest rate and no prepayment penalties, and demonstrates that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. As refinancing costs decline, the effects of monetary policy become less state dependent.

Richard Baldwin, 20 November 2007

In a May 2007 essay, Martin Feldstein argued that a drop in US mortgage refinancing would raise US personal saving and this would necessitate a fall in the dollar. That’s looking pretty good at the moment. Here his basic logic is explained.

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