 Mortgage choice and inflation experiences in the EurozoneJosefina Cenzon and Barna Elek Szabó Journal of Monetary Economics, 2024, vol. 147, issue S Abstract: In the Eurozone, households’ mortgage preferences vary widely, both within and across countries. This persistent heterogeneity in the choice between an adjustable rate mortgage (ARM) and a fixed rate mortgage (FRM) two decades after introducing a common currency is a puzzle. We argue that these patterns relate to the long-lasting effect of personal experiences of high-inflation periods. Analysing rich household data across 9 countries, we show that higher lifetime experienced inflation predicts significantly lower probability of holding an FRM: a 1 log-point increase in experienced inflation predicts a 71% decrease in the odds of holding an FRM. We relate our findings to existing theories on household mortgage risk management and argue that Eurozone prepayment penalties heighten the ‘inflation risk’ associated with FRMs. We also find that past personal inflation experiences are associated to risk aversion: households with histories of high and volatile inflation report lower willingness to take financial risk. Keywords: Experience effects; Household surveys; Inflation; Mortgage choice (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000643 DOI: 10.1016/j.jmoneco.2024.103611 Access Statistics for this article Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser More articles in Journal of Monetary Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.