Although data limitations make it hard to derive empirical estimates of each element of this decomposition going far back in the past, what transpires from this analysis is that all components had had a decades-long history of consistent decline.3 Taking a historical perspective, long-term inflation expectations had declined steadily since the beginning of the 1980s to stabilise at levels around 2% in the late 1990s.
In such cases, the monthly payment is reduced through a lower interest rate, an extension of the maturity of the loan, or a write-down of the principal balance. The proposal by the Hope Now Alliance to freeze interest rates at the introductory rate for five years is an example of a modification, in this case applied to a class of eligible borrowers.