Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market
Steffen Andersen, John Y. Campbell, Kasper Meisner Nielsen, Tarun Ramadorai
American Economic Review · 2020 · Volume 110 · Issue 10
Abstract
We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on 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, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.
Keywords
Monetary Policy, Banks, Depository Institutions, Micro Finance Institutions, Mortgages, Household Finance: Household Saving, Borrowing, Debt, and Wealth, Housing Supply and Markets
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