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- JEL: E52, E58, G01 Keywords: leaning against the wind, monetary policy, financial cycle, macroprudential policy â We thank SeHyoun Ahn, Karsten Gerdrup, Tord Krogh, Junior Maih, Lars E.O. Svensson, and participants at the 55th Annual Conference of the Canadian Economics Association, the 2021 EEA-ESEM Congress, 52nd Annual Conference of the Money, Macro and Finance Society, the European Central Bank, the Federal Reserve Board, Norges Bank, the OECD, and Statistics Norway for valuable discussions and comments. This Working Paper should not be reported as representing the views of Norges Bank or the Norwegian Ministry of Finance. The views expressed are those of the authors and do not necessarily reflect those of Norges Bank or the Norwegian Ministry of Finance. Any errors are our own. Email: thore.kockerols@norges-bank.no, emk@fin.dep.no, yasin.mimir@norges-bank.no.
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- Our setup is inspired by and very similar to Gelain et al. (2017) except that the latter study assumes that the households refinance a fixed fraction of the mortgage in every period, collateralised by the same fraction of their housing wealth. The labour market is characterised by monopolistic competition. Households supply labour and set wages subject to demand from the intermediate goods sector and the oil supply sector. Real wages are set as a markup over the marginal rate of substitution of consumption for leisure (see first-order conditions below). As there is assumed to be full labour mobility between the two sectors, there is only one wage level in the economy. Household j faces the following labour demand curve from the intermediate goods sector and the oil sector: Lt(j) =
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- Table 6 lists the empirical ratios (averages over the period 2010-2016) and the modelâs steady-state counterparts.
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- We follow Gelain et al. (2017) in that the loan principal repayment share follows from an (approximated) annuity loan repayment formula: δB t+1 (j) = 1 â IB,t (j) Bh,t (j) ! δB t (j) αh + IB,t (j) Bh,t (j) 1 â αh κh , (20) where αh and κh are exogenous parameters that govern the dynamics of amortisation rate. In the case of αh equal to 0, δB t (j) = 1 for all t, i.e. Bh,t (j) = IB,t (j), but if αh > 0, the above repayment formula captures the fact that the amortisation rate is low during the first years after taking up a mortgage when interest payments are high and increases thereafter. We calibrate αh and κh to capture the repayment schedule of a typical mortgage contract of 30 years. 6
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