Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market

American Economic Review, Forthcoming

67 Pages Posted: 9 Jul 2014 Last revised: 1 Apr 2020

See all articles by Steffen Andersen

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: March 6, 2020

Abstract

We build an empirical model to attribute delays in mortgage refinancing to psychological refinancing costs that inhibit refinancing until incentives are strong enough; and to behavior---potentially attributable to information-gathering costs---that lowers the probability that a household refinances in a given period at any incentive. We estimate the model on high-quality administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less educated households refinance with lower probability irrespective of incentives, and thereby achieve lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.

Keywords: mortgages, refinancing, time-dependent inaction, state-dependent inaction, household finance, monetary policy, Denmark

JEL Classification: G21, N20, R21, R31

Suggested Citation

Andersen, Steffen and Campbell, John Y. and Nielsen, Kasper Meisner and Ramadorai, Tarun, Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market (March 6, 2020). American Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2463575 or http://dx.doi.org/10.2139/ssrn.2463575

Steffen Andersen

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

CEPR ( email )

London
United Kingdom

John Y. Campbell

Harvard University - Department of Economics ( email )

Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)

HOME PAGE: http://scholar.harvard.edu/campbell

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

HOME PAGE: http://www.tarunramadorai.com

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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