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Regional Redistribution through the US Mortgage Market

Author

Listed:
  • Erik Hurst
  • Benjamin J. Keys
  • Amit Seru
  • Joseph Vavra

Abstract

Regional shocks are an important feature of the US economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the United States, most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSE). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions.

Suggested Citation

  • Erik Hurst & Benjamin J. Keys & Amit Seru & Joseph Vavra, 2016. "Regional Redistribution through the US Mortgage Market," American Economic Review, American Economic Association, vol. 106(10), pages 2982-3028, October.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:10:p:2982-3028
    Note: DOI: 10.1257/aer.20151052
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    References listed on IDEAS

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    1. Benjamin J. Keys & Tomasz Piskorski & Amit Seru & Vincent Yao, 2014. "Mortgage Rates, Household Balance Sheets, and the Real Economy," NBER Working Papers 20561, National Bureau of Economic Research, Inc.
    2. Mark Aguiar & Erik Hurst, 2013. "Deconstructing Life Cycle Expenditure," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 437-492.
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    Citations

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    Cited by:

    1. Philippe Martin & Thomas Philippon, 2017. "Inspecting the Mechanism: Leverage and the Great Recession in the Eurozone," American Economic Review, American Economic Association, vol. 107(7), pages 1904-1937, July.
    2. Buchak, Greg & Matvos, Gregor & Piskorski, Tomasz & Seru, Amit, 2017. "Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks," Research Papers 3511, Stanford University, Graduate School of Business.
    3. Andreas Fuster & Stephanie H. Lo & Paul S. Willen, 2017. "The Time-Varying Price of Financial Intermediation in the Mortgage Market," NBER Working Papers 23706, National Bureau of Economic Research, Inc.
    4. Finkelstein, David & Strzodka, Andreas & Vickery, James, 2018. "Credit risk transfer and de facto GSE reform," Staff Reports 838, Federal Reserve Bank of New York.
    5. repec:eee:juecon:v:99:y:2017:i:c:p:79-93 is not listed on IDEAS
    6. Xavier Giroud & Holger M. Mueller, 2017. "Firms' Internal Networks and Local Economic Shocks," NBER Working Papers 23176, National Bureau of Economic Research, Inc.
    7. Beraja, Martin & Fuster, Andreas & Hurst, Erik & Vavra, Joseph, 2015. "Regional heterogeneity and the refinancing channel of monetary policy," Staff Reports 731, Federal Reserve Bank of New York, revised 01 Mar 2018.
    8. Nadav Ben Zeev & Ohad Raveh, 2017. "Monetary Policy, Fisal Federalism, and Capital Intensity," OxCarre Working Papers 181, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    9. David Rappoport, 2016. "Do Mortgage Subsidies Help or Hurt Borrowers?," Finance and Economics Discussion Series 2016-081, Board of Governors of the Federal Reserve System (U.S.).

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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