Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

Chen, Hui; Michaux, Michael; Roussanov, Nikolai

doi:10.2139/ssrn.2024392

Cited by 51 publications

(66 citation statements)

References 91 publications

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“…existing home equity as incomes fall (Chen et al, 2013). 28 On the other hand, an increase in mortgage rates may prompt borrowers to rely less on …xed-rate mortgages, leading to an increase in , and strengthening the pass-through from the policy rate to the household borrowing rate.…”

Section: Discussionmentioning

confidence: 99%

“…Robstad (2014) uses Bayesian VARs with Norwegian data and …nds that monetary policy tightening has a small negative e¤ect on household credit, but leads to an increase in the household debt-to-income ratio, in line with our …ndings using the DSGE model. 10 Third, Kydland et al (2012) and Garriga et al (2013) analyze the e¤ects of …xed-rate mortgages for business cycles and the transmission of monetary policy in a general-equilibrium setting. Our set-up is most similar to these papers, although there are several important di¤erences.…”

Section: Related Literaturementioning

confidence: 99%

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Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Alpanda

Zubairy

2017

European Economic Review

108

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. iii Terms of use: Documents in AbstractIn this paper, we build a dynamic stochastic general-equilibrium model with housing and household debt, and compare the effectiveness of monetary policy, housing-related fiscal policy, and macroprudential regulations in reducing household indebtedness. The model features long-term fixed-rate borrowing and lending across two types of households, and differentiates between the flow and the stock of household debt. We use Bayesian methods to estimate parameters related to model dynamics, while level parameters are calibrated to match key ratios in the U.S. data. We find that monetary tightening is able to reduce the stock of real mortgage debt, but leads to an increase in the household debt-toincome ratio. Among the policy tools we consider, tightening in mortgage interest deduction and regulatory loan-to-value (LTV) are the most effective and least costly in reducing household debt, followed by increasing property taxes and monetary tightening. Although mortgage interest deduction is a broader tool than regulatory LTV, and therefore potentially more costly in terms of output loss, it is effective in reducing overall mortgage debt, since its direct reach also extends to home equity loans. JEL classification: E52, E62, R38 Bank classification: Housing; Transmission of monetary policy; Financial system regulation and policies; Economic models RésuméDans cette étude, les auteurs construisent un modèle d'équilibre général dynamique et stochastique intégrant le logement et la dette des ménages, et comparent l'efficacité de diverses mesures (politique monétaire, fiscalité relative au logement et réglementation macroprudentielle) pour réduire l'endettement des ménages. Le modèle incorpore les emprunts et les prêts à taux fixe à long terme se rapportant à deux types de ménages, et établit une distinction entre les flux de crédit et l'encours de la dette. Les auteurs utilisent des méthodes bayésiennes pour estimer les paramètres liés à la dynamique du modèle, et les paramètres de niveau sont calibrés de manière à ce qu'ils correspondent aux ratios clés calculés à partir de données sur l'économie américaine. Ils constatent que le resserrement de la politique monétaire peut induire une baisse de l'encours de la dette hypothécaire réelle, mais entraîner une augmentation du ratio de la dette au revenu des ménages. Parmi les mesures prises en considération, la réduction de la déduction fiscale au titre des intérêts hypothécaires et l...

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Section: Discussionmentioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Alpanda

Zubairy

2017

European Economic Review

108

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“…Iacoviello and Pavan (2013) make progress in modeling the lumpiness of housing purchases. Chen et al (2013) incorporate the many details relevant for mortgage refinancing at a micro level, and succeed in accounting for the U.S. credit boom in the 2000s. However, these studies are conducted within partial equilibrium models, which treat house prices, inflation and GDP as exogenous, and therefore cannot address the questions we ask in this paper.…”

Section: Introductionmentioning

confidence: 99%

Leaning Against the Credit Cycle

Gelain

Lansing

Natvik

2017

ERWP

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How should a central bank act to stabilize the debt-to-GDP ratio? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debtto-GDP is high, so as to deflate the debt burden through inflation and output growth.

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“…In the latter episode, unemployment increased from 4.7 percent in November 2007 to 10.0 percent in October 2009. 22 Chen, Michaux, and Roussanov (2013) similarly find that over 1993-2009, refinancing activity at a point in time was higher in states with worse economic conditions. Avery et al (2011) document lower refinancing propensities in 2010 than in 2003 using credit records data.…”

Section: The Time-varying Refinancing Channel In the Usmentioning

confidence: 87%

Regional Heterogeneity and Monetary Policy

2015

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We argue that the time-varying regional distribution of housing equity influences the aggregate consequences of monetary policy through its effects on mortgage refinancing. Using detailed loan-level data, we show that regional differences in housing equity affect refinancing and spending responses to interest rate cuts but that these effects vary over time with changes in the regional distribution of house price growth. We then build a heterogeneous household model of refinancing with both mortgage borrowers and lenders and use it to explore the aggregate implications for monetary policy arising from our regional evidence. We find that the 2008 equity distribution made spending in depressed regions less responsive to interest rate cuts, thus dampening aggregate stimulus and increasing regional consumption inequality, whereas the opposite occurred in some earlier recessions. Taken together, our results strongly suggest that monetary policy makers should track the regional distribution of equity over time.

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Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty

Cited by 51 publications

References 91 publications

Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Addressing household indebtedness: Monetary, fiscal or macroprudential policy?

Leaning Against the Credit Cycle

Regional Heterogeneity and Monetary Policy

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