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Do loss profiles on the mortgage market resonate with changes in macro economic prospects, business cycle movements or policy measures?

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  • Noordegraaf-Eelens, L.H.J.
  • Franses, Ph.H.B.F.

Abstract

__Abstract__ Over the years we see that mortgages with less risk of loss, due to more asset accumulation, have become more popular. We examine if this popularity resonates with macroeconomic features, business cycle movements and policy measures. Using detailed data from an important player in the Dutch mortgage market, covering 1990 to 2012, we seek to elicit the time series patterns of the loss profiles of customers. Over time we indeed find changes in loss profiles. The theoretical perspective used to situate this change in profile is prospect theory. Key findings of prospect theory are: interaction between framing of a decision, the attitude towards loss, and loss-averse behavior. Next, we find only very limited impact of changes in the macro economic situation on the loss profiles, that is, business cycle movements on the housing markets do not matter, nor do general business cycle movements. In contrast, we find that some changes in loss profiles are related to tax policy measures. Hence, we conclude that if policy makers want to stimulate loss-averse behavior through asset accumulation, they should actively encourage it.

Suggested Citation

  • Noordegraaf-Eelens, L.H.J. & Franses, Ph.H.B.F., 2014. "Do loss profiles on the mortgage market resonate with changes in macro economic prospects, business cycle movements or policy measures?," Econometric Institute Research Papers EI 2014-08, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:51317
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    More about this item

    Keywords

    mortgage market; macroeconomic policy; business cycles;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F - International Economics

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