Research paper examines impact of monetary policy on mortgage default

A Research Technical Paper by David Byrne, Robert Kelly and Conor O’Toole examines the impact of changes in interest rates on mortgage default.

The paper finds that:

• A 1 percent reduction in interest rates is associated with a 5.8 percent decrease in the likelihood of default over the following year.
• Evidence that negative equity offsets the some of the gains arising from lower policy rates indicating an interaction between monetary policy and asset price shocks in the mortgage market.
• While the main objective of monetary policy is not to deal with legacy mortgage issues an accommodative monetary policy can be seen as pro-stability by reducing the risk of mortgage delinquency and the resulting impairment of banks’ balance sheets.

The views presented in Research Technical Papers are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.

Research Technical Papers are published on the Central Bank’s website here.