Consumption and Initial Mortgage Conditions: Evidence From Survey Data
AbstractEconomic theory predicts that the consumption path of unconstrained homeowners responds to the interest rate, while the consumption path of credit constrained homeowners is determined by the size and timing of payments (mortgage maturity). We exploit the rapid expansion of mortgage markets during the last decade in Spain and a very detailed survey on household .nances to estimate group-speci.c consumption responses to changes in the credit conditions. Our estimates suggest that the consumption of households headed by an individual with high school responds more to mortgage maturity than to the interest rate spread. The consumption of the rest of indebted households is insensitive to loan maturity. Those results are con.rmed when we instrument loan maturity exploiting the fact that banks are reluctant to o¤er contracts with age at maturity above 65. An interpretation of those results is that households headed by middle education individuals, 8% of our sample, behave as credit constrained.
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Bibliographic InfoPaper provided by Central Bank of Luxembourg in its series BCL working papers with number 52.
Length: 62 pages
Date of creation: Feb 2011
Date of revision:
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Web page: http://www.bcl.lu/
Credit constraints; mortgages; household consumption;
Other versions of this item:
- Masier, Giacomo & Villanueva, Ernesto, 2011. "Consumption and initial mortgage conditions: evidence from survey data," Working Paper Series 1297, European Central Bank.
- Giacomo Masier & Ernesto Villanueva, 2011. "Consumption and initial mortgage conditions: evidence from survey data," Banco de Espaï¿½a Working Papers 1101, Banco de Espa�a.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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