The Supply Side of Household Finance

54 Pages Posted: 3 Dec 2015

See all articles by Gabriele Foà

Gabriele Foà

Yale University

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF)

Paolo Emilio Mistrulli

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: December 2015


We propose a new, data-based test for the presence of biased financial advice when households choose between fixed and adjustable rate mortgages. If households are wary, the relative cost of the two types should be a sufficient statistic for a household contract choice: the attributes of the bank that makes the loan should play no role. If households rely on banks' advice to guide their choice, banks may be tempted to bias their counsel to their own advantage. In this case bank-specific supply characteristics will play a role in the household's choice above any role they play through relative prices. Testing this hypothesis on a sample of 1.6 million mortgages originated in Italy between 2004 and 2010, we find that the choice between adjustable and fixed rates is significantly affected by change in banks' supply factors, especially in periods during which banks do not change the relative price of the two mortgage types. This supports the view that banks are able to affect customers' mortgage choices not only by pricing but also through an advice channel.

Keywords: Mortgage choice, financial advice, household finance

JEL Classification: D14, E43, G11, G12, G21

Suggested Citation

Foa, Gabriele and Gambacorta, Leonardo and Guiso, Luigi and Mistrulli, Paolo Emilio, The Supply Side of Household Finance (December 2015). BIS Working Paper No. 531, Available at SSRN:

Gabriele Foa

Yale University

New Haven, CT 06520
United States

Leonardo Gambacorta (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

Centre for Economic Policy Research (CEPR)

United Kingdom

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana 62
Rome, 00187
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)


Paolo Emilio Mistrulli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma

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