Monetary Policy, Insurers, and Real Estate Markets

Umang Khetan, Assistant Professor of Finance

We study the role of life insurance firms in the transmission of monetary policy to real estate markets. We analyze the universe of U.S. life insurers that, with $800 billion in non-securitized mortgage loan holdings, are major non-bank suppliers of real estate credit. We find that insurers increase commercial and residential mortgage lending when policy rates rise, a pattern that contrasts with that of banks. We investigate the unique characteristics of insurers’ balance sheets, including negative duration gaps and funding costs, that drive this countercyclical lending behavior. To isolate the drivers of
credit supply, we exploit cross-sectional variation in insurer characteristics, monetary policy shocks, and granular fixed effects. Our ongoing work further traces the real effects of insurer lending on property prices, rents, and construction activity. Overall, this project aims to uncover a novel channel of monetary policy transmission through the structure of intermediary balance sheets.