Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging

  title={Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging},
  author={Marco di Maggio and A Pouryazdan Panah Kermani and Benjamin J. Keys and Tomasz Piskorski and Rodney Ramcharan and Amit Seru and Vincent Yao},
  journal={The American Economic Review},
Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50 percent) induces a significant increase in car purchases (up to 35 percent). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults… 

Figures and Tables from this paper

Mortgage payments and household consumption in urban China☆

Interest-Only Mortgages and Consumption Growth: Evidence from a Mortgage Market Reform

We use detailed household-level data from Denmark to analyze how the introduction of interest-only mortgages affected consumption expenditure and borrowing. Four years after the reform interest-only

The Effect of Interest Rates on Home Buying: Evidence from a Shock to Mortgage Insurance Premiums

Abstract Regression discontinuity estimates indicate that home buying is highly responsive to interest rates in a large segment of the population. A surprise 50 basis point cut in the effective

How Do Mortgage Rate Resets Affect Consumer Spending and Debt Repayment? Evidence from Canadian Consumers

We study the causal effect of mortgage rate changes on consumer spending, debt repayment, and defaults during an expansionary and a contractionary monetary policy episode in Canada. Our

Monetary Policy, Housing, and Collateral Constraints

House-purchasing decisions and the possibility of existing homeowners to tap into their housing equity depend decisively on prevailing loan-to-value (LTV) ratios in mortgage markets with borrowing

Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession

Using a quantitative heterogeneous agents macro-housing model and detailed microdata, this paper studies the drivers of the 2006–2011 housing bust, its spillovers to consumption and the credit

The Enduring Effects of Interest Rates at Mortgage Origination

Modest differences in the interest rate at home purchase can have long-lasting effects on mortgagors. We use within-year variation in average interest rates at loan origination to instrument for

Household Debt and Monetary Policy: Revealing the Cash-Flow Channel

We examine the effect of monetary policy on household spending when households are indebted and interest rates on outstanding loans are linked to short-term interest rates. Using administrative

Monetary Policy and Birth Rates: The Effect of Mortgage Rate Pass-Through on Fertility

This paper examines whether monetary policy pass-through to mortgage interest rates affects household fertility decisions. Using administrative data on mortgages and births in the UK, our empirical

Mortgage cash-flows and employment




Population aging and the transmission of monetary policy to consumption

Previous work has documented that housing and refinancing decisions play an important role in shaping the aggregate and cross-sectional consumption elasticities to interest rate shocks. New home

Securitization and the Fixed-Rate Mortgage

Fixed-rate mortgages (FRMs) dominate the U.S. mortgage market, with important consequences for monetary policy, household risk management, and financial stability. In this paper, we show that the

Payment Size, Negative Equity, and Mortgage Default

Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower

Housing Finance and Monetary Policy

We study how the structure of housing finance affects the transmission of monetary policy shocks. We document three main facts: first, the features of residential mortgage markets differ markedly

Unemployment Insurance as a Housing Market Stabilizer

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we find that UI helps the unemployed

Optimal Mortgage Design

This article studies optimal mortgage design in a continuous-time setting with volatile and privately observable income, costly foreclosure, and a stochastic market interest rate. We show that the

Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore

This paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. Consumption rose significantly after the fiscal

Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide

We investigate whether homeowners respond strategically to news of mortgage modification programs. We exploit plausibly exogenous variation in modification policy induced by U.S. state government

Concentration in Mortgage Lending, Refinancing Activity and Mortgage Rates

We present evidence that high concentration in local mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. A decrease in MBS

Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program

We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizable financial incentives to renegotiate mortgages. HAMP increased intensity of