Effects of Monetary Policy on Household Expectations: The Role of Homeownership
Year: 2022
Type: article
Study design: Observational Study
Abstract: We study the role of homeownership in the effectiveness of monetary policy on households' expectations. Empirically, we find that homeowners revise down their near-term inflation expectations and their optimism about future labor market conditions in response to a rise in mortgage rates, while renters are less likely to do so. We further show that the monetary-policy component of mortgage-rate changes creates the difference in expectation revisions between homeowners and renters. This result suggests that homeowners are attentive to news on interest rates and adjust their expectations accordingly in a manner consistent with the intended effect of monetary policy. We characterize these findings using a rational inattention model with two types of households---homeowners and renters.
Authors: Hie Joo Ahn, Choongryul Yang, Shihan Xie
Language: English
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4302007885