Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market

Besley, Timothy J.; Meads, Neil; Surico, Paolo

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Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market

CEPR Discussion Paper No. DP7633

38 Pages Posted: 20 Jan 2010

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paolo Surico

London Business School - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: January 2010

Abstract

This paper uses a unique data set on more than 600,000 mortgage contracts to estimate a credit supply function which allows for risk-heterogeneity. Non-linearity is modeled using quantile regressions. We propose an instrumental variable approach in which changes in the tax treatment of housing transactions are used as an instrument for loan demand. The results are suggestive of considerable risk heterogeneity with riskier borrowers penalized more for borrowing more.

Keywords: credit supply, heterogeneous effects, instrumental variable., mortgage individual data, risk pricing

JEL Classification: D10, E21, G21

Suggested Citation: Suggested Citation

Besley, Timothy J. and Meads, Neil and Surico, Paolo, Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market (January 2010). CEPR Discussion Paper No. DP7633, Available at SSRN: https://ssrn.com/abstract=1539305