Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market
- (pp. 3184-3230)
Abstract
We build an empirical model to attribute delays in mortgage refinancing to psychological costs inhibiting refinancing until incentives are sufficiently strong; and behavior, potentially attributable to information-gathering costs, lowering the probability of household refinancing per unit time at any incentive. We estimate the model on administrative panel data from Denmark, where mortgage refinancing without cash-out is unconstrained. Middle-aged and wealthy households act as if they have high psychological refinancing costs; but older, poorer, and less-educated households refinance with lower probability irrespective of incentives, thereby achieving lower savings. We use the model to understand frictions in the mortgage channel of monetary policy transmission.Citation
Andersen, Steffen, John Y. Campbell, Kasper Meisner Nielsen, and Tarun Ramadorai. 2020. "Sources of Inaction in Household Finance: Evidence from the Danish Mortgage Market." American Economic Review, 110 (10): 3184-3230. DOI: 10.1257/aer.20180865Additional Materials
JEL Classification
- E52 Monetary Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- R31 Housing Supply and Markets