Summary of Mortgage Rates, Household Balance Sheets, and the Real Economy

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Mortgage Rates, Household Balance Sheets, and the Real Economy summary
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The Federal Reserve’s accommodative monetary policies after the 2008 financial crisis appear to have benefited Americans carrying adjustable rate mortgages, as well as the local economies in which they live. This scholarly paper by economists Benjamin J. Keys, Tomasz Piskorski, Amit Seru and Vincent Yao provides evidence of a direct link from low interest rates to increased consumption and employment, as well as to reduced indebtedness and foreclosures. getAbstract recommends this report, whose intended audience is the econometrician and the academic rather than the lay reader, for its contribution to the body of research on the effective transmission of monetary policy.

About the Authors

Benjamin J. Keys is an assistant professor of public policy at the University of Chicago, where Amit Seru is a finance professor at the Booth School of Business. Tomasz Piskorski is an associate professor of real estate at Columbia Business School. Vincent Yao is an associate professor of real estate at Georgia State University.



Monetary policy can meaningfully affect households’ financial welfare and their local economic regions. As interest rates fell and remained low from late 2007 to 2012, a result of the Federal Reserve’s quantitative easing, individuals holding adjustable rate mortgages (ARMs) saw reductions in their monthly debt repayments of about 20%. The reduction allowed people to cut their unsecured debt – mostly credit card balances – by an average of $616 over two years, or about 18% of the savings they realized on their mortgages. Moreover, mortgagors...

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