Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging
American Economic Review
vol. 107,
no. 11, November 2017
(pp. 3550-88)
Abstract
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 and an increase in house prices, car purchases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through.Citation
Di Maggio, Marco, Amir Kermani, Benjamin J. Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru, and Vincent Yao. 2017. "Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging." American Economic Review, 107 (11): 3550-88. DOI: 10.1257/aer.20141313Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D14 Household Saving; Personal Finance
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- R31 Housing Supply and Markets