Tuesday 13
D4 - Macroeconomics, Growth III
Chair: Gisle Natvik
› 15:15 - 15:40 (25min)
› Auditorium - 2nd floor
Leaning against the credit cycle
Gisle Natvik  1@  , Kevin Lansing  2@  , Paolo Gelain  3@  
1 : BI Norwegian Business School
2 : Federal Reserve Bank of San Francisco
3 : European Central Bank

We study how monetary policy and household debt interact when mortgages are amortized
gradually. Slow amortization implies the empirically observed debt persistence and debt-to-GDP
swings driven by output and inflation, rather than shifts in current borrowing. Interest hikes
only weakly influence household debt, increasing debt-to-GDP in the short run, and reducing
it in the medium run. Interest rate rules with a positive weight on the debt-to-GDP ratio induce
equilibrium indeterminacy and greater volatility of debt itself. Relative to inflation targeting,
leaning against debt-to-GDP swings calls for more expansionary policy when debt-to-GDP is
high, and more contractive policy when debt-to-GDP is low.

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