Heterogeneous Spillovers of Housing Credit Policy

42 Pages Posted: 19 Nov 2019

Date Written: November 18, 2019

Abstract

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

Suggested Citation

Pidkuyko, Myroslav, Heterogeneous Spillovers of Housing Credit Policy (November 18, 2019). Banco de Espana Working Paper No. 1940. Available at SSRN: https://ssrn.com/abstract=3489235 or http://dx.doi.org/10.2139/ssrn.3489235

Myroslav Pidkuyko (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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