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 finances to estimate group-specific 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 confirmed when we instrument loan maturity exploiting the fact that banks are reluctant to offer 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 Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1101.
Length: 65 pages
Date of creation: Mar 2011
Date of revision:
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," BCL working papers 52, Central Bank of Luxembourg.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
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