measured by loan-to-value (LTV) ratios? In a structural VAR, GDP and business investment increase following an expansionary LTV … shock. Residential investment, by contrast, falls, a result that depends on the systematic reaction of monetary policy. We … instrument, and, as a result, mortgage rates increase and residential investment declines. The monetary policy reaction function …

shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high … MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to … investment shocks, leading our model to infer a central role for these shocks as a source of business cycles. …