TY  - JOUR
AU  - Beraja, Martin
AU  - Fuster, Andreas
AU  - Hurst, Erik
AU  - Vavra, Joseph
TI  - Regional Heterogeneity and Monetary Policy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23270
PY  - 2017
Y2  - March 2017
DO  - 10.3386/w23270
UR  - http://www.nber.org/papers/w23270
L1  - http://www.nber.org/papers/w23270.pdf
N1  - Author contact info:
Martin Beraja
Department of Economics, E52-504
MIT
77 Massachusetts Avenue
Cambridge, MA 02139
Tel: 617/258-6022
E-Mail: martinberaja@gmail.com

Andreas Fuster
Swiss National Bank
Boersenstrasse 15
CH-8022 Zurich
Switzerland
E-Mail: andreas.fuster@gmail.com

Erik Hurst
Booth School of Business
University of Chicago
Harper Center
Chicago, IL  60637
Tel: 773/834-4073
Fax: 773/702-0458
E-Mail: erik.hurst@chicagobooth.edu

Joseph S. Vavra
Booth School of Business
University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-0959
E-Mail: joseph.vavra@chicagobooth.edu
AB  - We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but that these effects vary over time with changes in the regional distribution of house price growth. We then build a heterogeneous household model of refinancing with both mortgage borrowers and lenders and use it to explore the aggregate implications for monetary policy arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time. 
ER  -