Consumption and Initial Mortgage Conditions: Evidence from Survey Data

63 Pages Posted: 27 Mar 2011

See all articles by Giacomo Masier

Giacomo Masier

affiliation not provided to SSRN

Ernesto Villanueva

Banco de España - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: March 22, 2011

Abstract

Economic theory predicts that the consumption path of unconstrained homeowners responds to the interest rate, while the consumption path of credit constrained homeowners is determined by the size and timing of payments (mortgage maturity). We exploit the rapid expansion of mortgage markets during the last decade in Spain and a very detailed survey on household finances to estimate group-specific consumption responses to changes in the credit conditions. Our estimates suggest that the consumption of households headed by an individual with high school responds more to mortgage maturity than to the interest rate spread. The consumption of the rest of indebted households is insensitive to loan maturity. Those results are confirmed when we instrument loan maturity exploiting the fact that banks are reluctant to offer contracts with age at maturity above 65. An interpretation of those results is that households headed by middle education individuals, 8% of our sample, behave as credit constrained.

Keywords: Credit constraints, mortgages, household consumption

JEL Classification: D91, E91

Suggested Citation

Masier, Giacomo and Villanueva, Ernesto, Consumption and Initial Mortgage Conditions: Evidence from Survey Data (March 22, 2011). Banco de Espana Working Paper No. 1101, Available at SSRN: https://ssrn.com/abstract=1792491 or http://dx.doi.org/10.2139/ssrn.1792491

Giacomo Masier

affiliation not provided to SSRN ( email )

Ernesto Villanueva (Contact Author)

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

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