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Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

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  • Nikolai Roussanov

    (Wharton and NBER)

  • Michael Michaux

    (USC Marshall)

  • Hui Chen

    (MIT Sloan and NBER)

Abstract

This paper constructs a theory of land market activity in settings where there is uncertainty and private information about the security of land tenure. Land sellers match with buyers in a competitive search environment, and an illiquid land market emerges as a screening mechanism. As a consequence, adverse selection and an insecure system of property rights stifle land market transactions. As a useful application of the model, I analyze the relationships between the characteristics of the land market and labour flows between agricultural and off-farm employment. Empirical analysis using household level data from Indonesia provides credence to the proposed mechanism. Difference-in-difference estimation and probit analysis show that formally titled land is actively traded, while untitled land is less liquid. This is consistent with the theory given that possession of a legal land certificate improves ownership security, and ac- cess to a land registry reduces the asymmetry of information. Additional implications of the theory are verified empirically by studying the differences between markets for unregistered land across Indonesian provinces.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 1369.

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Date of creation: 2011
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Handle: RePEc:red:sed011:1369

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Cited by:
  1. Campbell, John Y. & Cocco, João F., 2014. "A model of mortgage default," CFS Working Paper Series 452, Center for Financial Studies (CFS).
  2. European Central Bank & Stefano Corradin, 2009. "Household Leverage," 2009 Meeting Papers 906, Society for Economic Dynamics.
  3. Aytek Malkhozov & Philippe Mueller & Andrea Vedolin & Gyuri Venter, 2013. "Mortgage Hedging in Fixed Income Markets," FMG Discussion Papers dp722, Financial Markets Group.

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