Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms

De Stefani, Alessia; Moertel, Julia

doi:10.2139/ssrn.3389943

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Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms

63 Pages Posted: 6 Jun 2019 Last revised: 4 May 2020

See all articles by Alessia De Stefani

Julia Moertel

University of Edinburgh

Date Written: May 1, 2020

Abstract

Using detailed Danish micro-data, we study how a credit-driven boom in consumer demand affects firm dynamics. We exploit the introduction of interest-only mortgages in 2003 to estab- lish a structural break in Danish households’ spending capacity. A difference-in-differences approach indicates that the reform sharply increases consumers’ expenditure. This demand shock generates revenues and profits for Danish firms and results in the creation of at least 2,500 additional jobs, between 2004 and 2010. These positions are concentrated in the non- tradable sector. Our results indicate that mortgage markets shape the size and composition of real economic activity during expansion phases.

Keywords: Interest-Only Mortgages; Consumption; Employment

JEL Classification: E32, D22, J21

Suggested Citation: Suggested Citation

De Stefani, Alessia and Moertel, Julia, Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms (May 1, 2020). Available at SSRN: https://ssrn.com/abstract=3389943 or http://dx.doi.org/10.2139/ssrn.3389943