Heterogeneous Spillovers of Housing Credit Policy

37 Pages Posted: 8 May 2019 Last revised: 7 Oct 2019

See all articles by Myroslav Pidkuyko

Myroslav Pidkuyko

Banco de España; University of Manchester - Department of Economics

Date Written: October 4, 2019

Abstract

We study the spillovers from government intervention in the mortgage market on households’ consumption. After an expansionary mortgage market operation, the consumption response of homeowners with mortgage debt is large and significant, while the consumption response of homeowners without the mortgage debt is small and insignificant. Non-homeowners also increase their consumption but less than mortgagors. We also find that expansionary policy significantly increases consumption inequality of mortgagors. We explain these facts through the lens of a life-cycle model with incomplete markets and endogenous housing choice. Reduction in credit rates creates extra wealth for the mortgagors while the reduction in interest rates shifts this wealth towards consumption. Increase in wealth is bigger for those with larger mortgage- this exacerbates consumption inequality.

Keywords: Mortgage Debt, Life-Cycle Models, Government-Sponsored Enterprises, Credit Policy

JEL Classification: E21, E44, R38, G28

Suggested Citation

Pidkuyko, Myroslav, Heterogeneous Spillovers of Housing Credit Policy (October 4, 2019). Available at SSRN: https://ssrn.com/abstract=3289556 or http://dx.doi.org/10.2139/ssrn.3289556

Myroslav Pidkuyko (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom
447538278604 (Phone)

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