The terms for mortgage financing, which is the most important transmission channel to the household sector, are predominantly based on fixed 20-year or 30-year mortgage bond yields. Variable mortgage lending at 1-5 year interest rates has, however, gained in importance in recent years, but is still at a relatively low level.
The basic textbook model includes only one policy instrument for short-term stabilisation – monetary policy. This is a standard formulation in the literature and also in line with practice in most industrialised countries. Discretionary fiscal policy came into disrespect after the abuse of the instrument in the 1960s and 1970s, which led to stagflation, large budget deficits and high public debt in many countries.