Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging – hosted by Ofer Abarbanel online library

American Economic Review 2017, 107(11): 3550–3588 https://doi.org/10.1257/aer.20141313

Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging†
By Marco Di Maggio, Amir Kermani, Benjamin J. Keys, Tomasz Piskorski, Rodney Ramcharan, Amit Seru, and Vincent Yao*

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 pur- chases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through. Continue reading “Interest Rate Pass-Through: Mortgage Rates, Household Consumption, and Voluntary Deleveraging – hosted by Ofer Abarbanel online library”