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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)

Neil Meads


Bank of England

Paolo Surico


London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)
January 2010

CEPR Discussion Paper No. DP7633

Abstract:     
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, G21

working papers series


Date posted: January 20, 2010  

Suggested Citation

Besley, Timothy J., Meads, Neil and Surico, Paolo, Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market (January 2010). CEPR Discussion Paper No. DP7633. Available at SSRN: http://ssrn.com/abstract=1539305

Contact Information

Timothy J. Besley (Contact Author)
London School of Economics & Political Science (LSE) - Department of Economics ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6702 (Phone)
+44 20 7955 6951 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Neil Meads
Bank of England ( email )
Threadneedle Street
London, EC2R 8AH
United Kingdom
Paolo Surico
London Business School - Department of Economics ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
HOME PAGE: http://sites.google.com/site/paolosurico
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
HOME PAGE: http://sites.google.com/site/paolosurico
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