The terms will likely not be as generous as they would have been a few months ago, but the mortgage origination market has thus far avoided a full-blown state of dis-equilibrium, and instead appears to be moving from one equilibrium state to another, new equilibrium state: 'dat-equilibrium.
But at the time, they were a product of a market functioning at equilibrium.
The differences are that the present paper (1) uses staggered pricing of the sort appearing in models with explicit microfoundations and in some empirical work on the monetary transmission mechanism, (2) obtains analytical and not purely numerical results by virtue of the linear-quadratic approach, (3) derives optimal targeting rules for monetary and fiscal policy that yield a single rational-expectations equilibrium and optimal policy responses to any shock.
And each authority simultaneously makes the projected paths of inflation and the output gap (the target variables) satisfy the attainment of a unique, nonexplosive, rational-expectations equilibrium.
