Heterogeneous Spillovers of Housing Credit Policy
42 Pages Posted: 19 Nov 2019
Date Written: November 18, 2019
We study the spillovers from government intervention in the mortgage market on households’ consumption using the household survey data from the US. After an expansionary mortgage market operation, the increase in consumption 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 the consumption inequality of mortgagors. We explain these facts through the lens of a lifecycle model with incomplete markets and endogenous housing choice. Reduction in credit rates creates extra wealth for the mortgagors while a reduction in interest rates shifts this wealth towards consumption. An increase in wealth is bigger for those with a larger mortgage- this exacerbates consumption inequality.
Keywords: mortgage debt, life-cycle models, government-sponsored enterprises, credit policy
JEL Classification: E21, E44, R38, G28
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