This thesis examines the transmission of monetary policy and the effects of persistent cost-push shocks in the presence of high household indebtedness (DTI) and frictions in fixed-rate mortgage (FRM) interest rates. A dynamic stochastic general equilibrium (DSGE) model incorporating housing, household debt, and long-term FRMs is estimated to accomplish this. The key findings can be summarized as follows: (i) A higher DTI leads to a stronger transmission of monetary policy, although this effect is dampened by the degree of interest rate fixation periods. (ii) Cost-push shocks propagates more strongly to inflation when the interest rate fixation periods is longer, resulting in delayed and slightly muted effects on output and consumption compared to adjustable-rate mortgages (ARM). (iii) While stronger responses to inflation help mitigate the cost-push shock, this comes at the expense of a larger output gap but with a slightly faster stabilization of the economy with a somewhat steeper recovery.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:uu-507334 |
| Date | January 2023 |
| Creators | Backberg, Emma |
| Publisher | Uppsala universitet, Nationalekonomiska institutionen |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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