State Dependent Effects of Monetary Policy: the Refinancing Channel

This paper studies how the impact of monetary policy depends on the dis- tribution of savings from refinancing mortgages. We show that the e cacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life-cycle model that accounts for our findings. Motivated by the rapid expansion of Fintech, we study the impact of a fall in refinancing costs on the e cacy of monetary policy. Our model implies that as refinancing costs decline, the e?ects of monetary policy become less state dependent and more powerful.