This paper studies the role of adjustable-rate mortgages (ARMs) in monetary policy transmission within the Euro Area. Conventional wisdom holds that ARMs are relevant per se. This study finds that the presence of liquidity-constrained households strongly influences their impact. Using Euro Area survey data, I document that transmission is stronger in countries that exhibit both high ARM shares and sizable shares of liquidity-constrained households. Using Italian time series data, I show that ARMs are key for transmission only when a high fraction of households are liquidity-constrained. To explain these findings, I develop a heterogeneous-agent model featuring: (i) heterogeneity in marginal propensities to consume (MPCs), (ii) agents making both housing and mortgage choices, and (iii) a fraction of households with ARMs. In the model, MPCs determine the extent to which changes in mortgage payments translate into changes in consumption, making ARMs an important transmission vehicle only when paired with high MPCs. These results underscore the importance of accounting for household heterogeneity when evaluating monetary policy transmission through adjustable-rate mortgages.

We present an Open Economy HANK model tailored to capture key characteristics of Low-Income Countries (LICs): (i) poor households with no access to markets (hand-to-mouth) and (ii) a subsistence level of consumption for tradable goods. With the model calibrated for a representative LIC, and motivated by recent macroeconomic developments, we illustrate our framework investigating the consequences of a shock to external prices. We analyze its effects on macroeconomic variables, inequality and poverty. The shock triggers a consumption-led recession, an increase in inflation and a drop in real wages. Consumption inequality increases: poor households can't insure against the shock, while richer households exploit their wealth to shield their consumption. Households at the bottom and at the top of the income distribution are the most negatively affected by the shock: the former suffer from lower wages and consumption; the latter from negative revaluations of their assets. Monetary policy has limited ability to improve the welfare of poorer households due to its offsetting effects on real wages and labor demand, a finding consistent across the alternative monetary policy specifications analyzed. In contrast, fiscal transfers are shown to be effective in cushioning the welfare losses among  poorer households.

Machine learning models can extract information in a systemic, comprehensive, and replicable way, creating synthetic proxies for a wide range of variables that cannot be measured otherwise. In this paper, we emphasize that a lot more information and correlation patterns can be extracted from existing historical data using these models. To illustrate our methodology, we study the effects that the Latin Monetary Union had on financial flows among its members in the 19th century, a natural question that has not been addressed because of the lack of data for financial flows during that period. Relying on machine learning techniques, we are able to circumvent these data limitations by reconstructing a proxy for financial flows across 14 countries between 1861 and 1913. Making use of our proxy, we use standard casual inference methods and find that bilateral financial flows increased by 5% between 1865 and 1913 among members of the LMU, and by approximately 15% between 1865-1885, the period during which the Union was most active. Overall, these results provide new insights about the history of the LMU, showing that it did help member countries achieve part of the goals that had pushed them to join the Union in the first place. 

Short summary. The variation in the prevalence of adjustable-rate mortgages (ARMs) across countries is striking: in the Euro Area, over 90% of mortgages in Portugal are ARMs, compared to only about 10% in France. This share also fluctuates significantly over time: in the US, more than 30% of new mortgages had adjustable rates in the 1990s, while today the fraction is less than 10%. What drives these patterns? To address this question, this paper develops a model with heterogeneous agents in which the choice between fixed and adjustable mortgage rates is endogenous, allowing for a clearer understanding of the household characteristics that, absent additional economic frictions, would make ARMs an optimal choice. 

Short summary. This paper explores the impact of housing policies on the dynamics of the German current account. Since the early 2000s, the German economy has experienced a remarkable expansion of its current account, marked by both a decline in national investment and a surge in national savings. Notably, a substantial portion of this investment reduction stems from the household sector, whose primary form of investment is in housing. Several significant housing policies were introduced by the German government in the late 1990s and early 2000s: (i) the 1997 German Tax Act raised the real estate transfer tax rate from 2% to 3.5%; (ii) the 2001 Tenancy Reform Act strengthened renter protections; and (iii) the 2001 Social Housing Reform abolished a longstanding housing construction subsidy in place since 1950. This paper builds an open-economy HANK model to investigate the extent to which these housing policies contributed to the German current account expansion. Did these reforms encourage greater household demand for liquid assets which, within the context of a newly-formed currency union with lower financial barriers, led to higher international lending? 

One of the most important legacies of the Covid-19 pandemic is a massive increase in private assets, the so-called excess savings. Starting from this empirical observation, this paper studies the implications of excess savings for US inflation over the medium run. Relying on a calibrated HANK model, this paper finds that the expected drawdown of aggregate assets that follows the re-opening of the US economy will result in mild, albeit prolonged, inflationary pressures. The reason lies in the distribution of excess savings across households. The fiscal stimulus put in place by the US government has particularly benefited the accumulation of savings by low-income agents. As the economy re-opens, these households quickly decrease their assets due to their high MPCs, contributing to a timely recovery of consumption and inflation after their initial drop. Afterwards, the bulk of savings is left in the hands of higher-income households, who drawdown their assets smoothly over time, leading to contained inflationary pressures. Nonetheless, the paper shows that alternative fiscal policies may lead to different results: the longer the government decides to keep its increased debt levels unchanged, the larger the inflationary pressures out of excess savings.