Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market
Timothy J. Besley
London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Bank of England
London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP7633
This paper uses a unique data set on more than 600,000 mortgage contracts to estimate a credit supply function which allows for risk-heterogeneity. Non-linearity is modeled using quantile regressions. We propose an instrumental variable approach in which changes in the tax treatment of housing transactions are used as an instrument for loan demand. The results are suggestive of considerable risk heterogeneity with riskier borrowers penalized more for borrowing more.
Number of Pages in PDF File: 38
Keywords: credit supply, heterogeneous effects, instrumental variable., mortgage individual data, risk pricing
JEL Classification: D10, E21, G21working papers series
Date posted: January 20, 2010
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